NA Investments Holdings v Perpetual Nominees [2010] NSWCA 210

The borrower (who was a trustee) had inserted into the facility a clause that read:

(a)  The Trustee’s liability to pay any amount in accordance with the Finance Documents, may be discharged from and the recourse of the Trustee is limited to, the FFA Trust Property. The Lender may not seek to recover any shortfall in the amounts owing to it under or in connection with this agreement by bringing proceedings against the Trustee or applying to have the Trustee wound up.

The trial judge found that this did not prevent the lender issuing a winding up notice because:

The bringing of proceedings or applying to have the trustee wound up is conditioned by the first part of the sentence to a situation where the lender is seeking “to recover any shortfall in the amounts owing to it under or in connection with this agreement…”. Plainly the shortfall is the extent to which the trust property is insufficient to allow recovery of the full amount due.

The effect of this condition may be illustrated by a situation where a plaintiff simply refuses to pay any amount that is due under the facility. If the lender then sued it would be open to the borrower to plead as a matter of defence that the whole or some part of the amount sought to be recovered is beyond the amount of the trust property and therefore not recoverable. It could hardly be imagined that a proper construction of the clause would allow the borrower to defend the proceedings simply on the basis that they are “proceedings” for recovery and thus prohibited by the clause.

The NSW Court of Appeal agreed:

The notion of seeking to recover by bringing proceedings against the Company in the second sentence of para (a) is a concept wide enough to embrace the bringing of an action for debt. In a hypothetical action by Perpetual against the Company for debt, the Company would bear the onus of pleading and establishing that the claim was in respect of a “shortfall”, that is to say, that the limitation of liability provision was enlivened. For all that is known, unless and until the Company pleaded and proved otherwise, the realisable value of the FFA Trust property might be sufficient to pay the Money Owing, that is to say, there might be no shortfall.

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