YIC Industrial Pty Ltd & Anor v SPA Investments Pty Ltd & Ors

In this significant case, the Court of Appeal considered whether the inclusion on a registered mortgage of the ACN of a de-registered company which, when registered, had the same name as the lender of moneys secured by the mortgage, gave rise to an ambiguity or absurdity such that it could be altered by an order of rectification.

Sofronoff P and Fraser JA and Flanagan J

27 May 2022

In October 2009, YIC Industrial Pty Ltd (“YIC”) borrowed $3.5 million from two lenders, SPA Investments Pty Ltd (“SPA”) and Pioneer Australia Pty Ltd (“Pioneer 2”). [5]. YIC’s borrowing was to be secured by a mortgage over some of its property for the benefit of SPA and Pioneer 2. [5]. Critically, the transaction documents did not use Pioneer 2’s ACN, but instead used the ACN of a former company by the same name which by that point had been de-registered (“Pioneer 1”). [5]–[6]. Some time later, a solicitor for the third respondent, GSS, submitted a request to correct the ACN with the Titles Office, such that the title unambiguously referred to Pioneer 2 (rather than Pioneer 1) as a mortgagee. [10]–[11].

YIC defaulted under the loan agreement, and SPA and Pioneer 2 exercised their power of sale as mortgagees. [19]. As the sale price was not enough to satisfy all YIC’s indebtedness, proceedings were brought against YIC and the guarantors under the loan agreement for the remainder of the debt. [19]–[20]. The proceedings were brought by SPA and in the name of Pioneer 1. [20]–[22].

YIC subsequently sued, alleging that the debt action was induced by fraud, although summary judgment was granted against it. [23]. The primary judge found, among other things, that there had been no fraud because the inclusion of Pioneer 1’s ACN in the mortgage documents was an error which could have been corrected either with the parties’ agreement or, if YIC refused to agree, through an order for rectification. [28].

On appeal, YIC  accepted that the inclusion of Pioneer 1’s ACN, rather than Pioneer 2’s ACN, on the mortgage was a mistake. [27]. However, it disagreed with the proposition that this mistake was an error which could be corrected by rectification as there was no ambiguity in the transaction documents as they accurately describe an entity that did at one point exist (Pioneer 1), although it had by that time ceased to exist. [30].

Justice Fraser, with whom Sofronoff P and Flanagan J agreed, did not accept this submission. His Honour considered that contractual ambiguities for the purposes of rectification need not be patent, but could be latent too. [30]. As to this, his Honour found that such a latent ambiguity existed through the inclusion of the extant Pioneer 2’s name and the de-registered Pioneer 1’s ACN. [30].

Justice Fraser considered that any reasonable person in the parties’ position must be taken to have intended that the security deed and mortgage have legal effect. [32]. Accordingly, the inclusion of Pioneer 1’s ACN “is to be disregarded as a mere misnomer”. [32]. Further, his Honour considered that the Court has the power to correct a contract where there was “self-evident absurdity in the literal meaning of part of a contract”. [33]. Here, the absurdity arose because a company is identified not only through its ACN, but also through its name and indeed through the names of company officers between specified dates. [34]. It followed that the primary judge was entitled to treat Pioneer 2 as one of the lenders and mortgagees, rather than the de-registered Pioneer 1, such that the pleaded fraud claim could not succeed. [34]–[35].

Further, Fraser JA considered that there were no real prospects that YIC could show that SPA, Pioneer 2 or GSS had acted fraudulently in the manner pleaded. [36]–[51]. In the event, the application for an extension of time to appeal and the appeal were dismissed with costs. [55].

M Paterson