The drafting and subsequent interpretation of a Bank's "all moneys" clause came under the spotlight in the recent NSW judgment of Meldov Pty Ltd -v- BOQ  NSWSC 378. If drafted widely enough, an "all moneys" clause can secure even an amount sought to be recovered by a Bank under the law of restitution (i.e. recovery of money paid by mistake).
- The Facts:
- The Bank advanced $760K more than intended to the mortgagors (the sum was mistakenly paid twice & the mortgagors exhausted the funds);
- After default by the mortgagors, the Bank exercised its power of sale as first mortgagee over the properties held as security, applying all proceeds to discharge the mortgagors' obligations to the Bank;
- The plaintiff, being the second mortgagee of the properties, disputed that the mortgagors were contractually required by the Bank's mortgage to repay the funds mistakenly advanced;
- Whilst the second mortgagee accepted the Bank had a claim in restitution, it submitted that the claim was not secured by the first mortgage when properly construed.
- The Issues:
- The Bank's entitlement to the proceeds of sale depended on whether or not the mistaken advance was secured under the "all moneys" clause of its mortgage;
- The construction and effect of the "all moneys" clause in the Bank's mortgage was considered in the context of whether the additional funds were secured.
- The relevant terms and conditions:
- The Bank's mortgage stated that it secured payment by the mortgagors of the "Total amount owing", defined as:
"at any time, all money which one or more of you owe us, or will or may owe us in the future, including under this mortgage or any agreement covered by this mortgage";
- The mortgage also stated that the above definition applies:
"(a) irrespective of the capacity in which [the mortgagors] or [the Bank] became entitled to the amount concerned;
(b) irrespective of the capacity in which [the mortgagors] or [the Bank] became liable in respect of the amount concerned;…";
- Further, the loan agreement terms referred to the making of 'errors', to include the making of advances by the bank (i.e. the parties specifically contemplated it).
- Lessons to learn:
- The case provides a useful summary on the guidelines applicable to the construction of "all moneys" clauses. However, in approaching construction of the mortgage, the Court did not follow what now appears to be the traditional 'reading down' of the clause against the interests of a mortgagee;
- The "all moneys" clause was given its ordinary meaning and it was held wide enough to govern restitutionary obligations;
- The mortgage terms clearly and conventionally defined the mortgagors' obligation to repay the amount owing and the relevant clauses stated that the mortgage was to be interpreted broadly. It was not the Court's place to 'stifle' that contemplation through application of a narrow interpretation;
- Lenders need to be specific enough in their terms and conditions to capture circumstances such as 'mistaken/erroneous' payments, but broad enough to avoid a narrow interpretation. A balancing act - draft your loan agreement and mortgage terms and conditions carefully!