ANZ Banking Group Limited v Tiricovski

Judgment Introduction 1This action concerns loan agreements and cross-guarantees entered into in various ways with the ANZ Banking Group Limited by Robert, Slavica and Vlado Tiricovski and companies associated with them, Australian Fresh Confectionary Pty Limited (Administrators Appointed) (AFC), Frenmast Pty Limited (Frenmast) and RV and Sons Pty Limited (Administrators Appointed) (RV). Except with respect to several matters of fact which are in dispute and to which I will come to in due course, the general outline of the relevant background of facts is, in substance, not disputed. In 2001 and 2008 guarantees were executed in respect of the various loans. Essentially the issues in the case are whether they are still operative, in the former case because it is alleged Frenmast's execution was not authorised by the Board and there was a later agreement by the bank to release it and, in the latter, the alleged forgery on the guarantee of Vlado's signature as director of Frenmast and the company not having authorised entry into the obligation. A related issue is whether, if the 2008 guarantee is binding on Frenmast by virtue of the so-called indoor management rule which is embodied in ss 127,128 and 129 of the Corporations Act 2008, Vlado's personal guarantee extends to the obligation which in effect arises because Frenmast is estopped from denying that it is bound. 2Vlado and Frenmast by their cross-claims seek various declarations having the effect that Frenmast is not bound by the 2001 or 2008 cross-guarantees and that Vlado is not bound to pay ANZ for Frenmast's obligations as claimed to arise under the 2001 and 2008 cross-guarantees, together with ancillary relief. Inter alia, Vlado and Frenmast claim that, at the time of entering into the 2008 cross-guarantee, the bank failed to enquire or sufficiently enquire as to whether he had agreed or consented to or approved it and it ought to have known that he did not do so, thus that it is unconscionable for the bank to rely on the guarantee in making its claim against Frenmast and it should be set aside. In the alternative, Vlado claims that it is unconscionable for the bank to rely upon the 2008 cross-guarantee in making a claim against him on his personal guarantee of the debts of Frenmast. Frenmast also claims that it tendered payment of the balance due to the bank of its outstanding debt - except for the bank's claims under the cross-guarantee - but the bank refused to accept payment and discharge its mortgage. It alleges that the refusal was an anticipatory breach of the terms of the loan and mortgage entitling it to damages. 3Vlado also seeks relief pursuant to the Contracts Review Act 1980 in respect of his personal guarantee, relying on the circumstances in which he came to execute it and the Frenmast cross-guarantee, alleging that Robert implicitly implied that his and the Frenmast guarantee related only to the debt of about $920,000 borrowed by Frenmast and was not informed by the bank or Robert that the debts of AFC, RV and Robert and Slavica were also being secured by those guarantees. Although not specifically claimed under this heading, I understand that Vlado also seeks to rely on the Act in relation to his liability arising from the 2008 guarantee (should it be held to be enforceable against Frenmast), which is alleged to be invalid as against him. Background 4Robert Tiricovski, Tony Trapp and Vlado Tiricovski commenced the manufacture of liquorice in 1995, initially in partnership. Liquorice was produced from raw materials and sold to retail stores such as Coles, Woolworths and Target. Mr Trapp ceased to have any involvement in the business in about 1998. Frenmast owned land at Carlton on which there was a factory that was used by RV to manufacture liquorice up until about November 2009 when a voluntary administrator was appointed. There was no written lease between Frenmast and RV but RV paid for its use and occupation of the land by paying to Frenmast the outgoings on the land and the mortgage payments due to ANZ in respect of the mortgage on the land. The shares in Frenmast were acquired by 1997, 100 each by Steve Tiricovski, Robert and Vlado, the vendor retaining ten shares. At this time the Carlton land was already owned by Frenmast. As I have mentioned, Frenmast did not engage in any activity except as owner of the land used by RV. 5When the business commenced, Robert, Mr Trapp and Vlado undertook the production work whilst Robert and Mr Trapp also undertook the office work. Although Vlado did a little office work, this was limited because he could not write (but he could, with difficulty, read) in English. From shortly after the commencement of the liquorice business, Robert managed the business in terms of its administration, including the arrangement of finance, whilst Vlado concentrated on undertaking and supervising the manufacturing of the product, as I understand it, for RV. A third brother, Steve, was also a director of Frenmast but spent most of his time overseas and, it appears, did not participate actively in the management of the company. In 2006, Steve and Vlado had a major disagreement with Robert and no longer communicated with him. There is no evidence as to how the company was thereafter conducted, except that Steve and Vlado's evidence is to the effect that they played no part in its affairs (which, of course, were merely static as the owner of premises rented out to RV), though they remained as directors, and did not authorise Robert or the company to enter into any arrangements of any kind with the bank. AFC, formerly VR & Sons Pty Limited, undertook the business of selling liquorice to retailers, having its own retail customers, as did RV and it seems that AFC sold liquorice which it purchased from RV. Although, until 2000, Vlado was a shareholder as well as director and secretary of AFC, he was removed as shareholder and from the offices of director and secretary and replaced by Slavica Tiricovski, Robert's wife. He says that he did not know the circumstances in which he was removed from these positions but it is of no immediate importance. The execution of security documents 6The three crucial documents are the Frenmast cross-guarantee and Vlado's guarantee of Frenmast, both executed on 7 September 2001 and a further Frenmast guarantee executed on 3 September 2008. 7The Frenmast cross-guarantee concerned the liabilities to the bank from time to time of Frenmast, RV, AFC, Slavica and Robert. At the time, Robert, Vlado and their brother Steve were the directors of Frenmast. Robert was also secretary. As I understand it, Vlado does not deny that he signed this document. Attached to this cross-guarantee is an extract of minutes of a meeting of directors of Frenmast signed by Robert as secretary, in substance, authorising execution of the cross-guarantee, floating charge and a mortgage over the Carlton property. The resolution also provided - "(g) each director of the Company is jointly and severally authorised on behalf of the Company to act fully and effectually in all dealings, matters and transactions with ANZ about the Securities now or in the future, including: (i) to act in terms of and for the purposes of the Securities and any other document relevant to the facilities provided by ANZ to the Customers; and (ii) to complete and deliver to ANZ on behalf of the Company any acknowledgment of changes in the facilities provided by ANZ to the Customers (including increased or additional facilities) and any confirmation that the Securities and any other security, guarantee or indemnity which may be given by the company continue to secure facilities provided to the Customers despite any changes in arrangements between ANZ and the Customers." 8Whether there was in fact any such meeting of directors as stated in the minute is an issue in the case. 9A diary note dated 7 September 2001 signed by Ms Josie Isaac, Relationship Manager and Ms Jennifer A. Campbell, Assistant Manager, records that they visited the Frenmast premises at Carlton "to explain and execute" the security documents "with customers, Robert, Slavica and Vlado Tiricovski", stating that the mortgage documents were handed to them "with the request that they should seek independent legal advice if they wish to do so". The note also states that the parties "declined our request as they had previously signed these documents with [another ANZ connected entity], therefore they waived their rights to seek independent legal advice and in the circumstances the general nature of the documents were then discussed with them". This statement falls far short of narrating the course of events, in particular it does not refer to handing over the guarantees, let alone what was said in relation to them. The only information stated as having been conveyed concerns obtaining independent legal advice. 10Vlado's evidence is that he can recall only one woman being present on the occasion the documents were signed and that, at all events, he did not speak with her. He said the documents were given to him in the production area and that Robert and the lady walked away to talk. By the time they returned, he had already signed the documents. He knew where to sign because there were stickers on the documents indicating where he should do so. He said that there was no suggestion he should get independent legal advice. It is implicit in his evidence that Slavica was not present. 11The effect of Vlado's evidence is that he trusted Robert to manage the financial affairs of the Company and simply signed the documents because Robert had told him they were necessary "for the refinance on the building". Robert mentioned that the amount (which Vlado does not now precisely recall) was about $920,000 and certainly not greater than $930,000. Vlado believed that the documents involved only Frenmast's obligation of $920,000 or thereabouts to the Bank and he was unaware that he was guaranteeing also the obligations of RV, AFC and the personal obligations of Robert and Slavica. The fact that his name was struck from the cross-guarantee of those parties and he executed a separate guarantee that did not mention Frenmast's obligations under the cross-guarantee is, however, suspicious since it is difficult to see why such an unnecessary course was taken when the same result would have been achieved had he been a party to and executed the cross-guarantee together with the other cross-guarantors. Vlado also said, in substance, that he thought that Frenmast was borrowing that sum in respect of its business and was not told and did not understand Frenmast was also guaranteeing the obligations of RV, AFC, Robert and Slavica. He does not recall the documents he signed or how many times he attached his signature to the documents. 12Vlado agreed that he also signed (as a director) on the Frenmast mortgage on 7 September 2001. This does not specify the amount of debt secured or give any details of interest or repayment. The imprint of the Office of State Revenue states that the "amount secured" is $924,000. The mortgage incorporates a "Memorandum of Common Provisions". As one might expect, this is in general terms and gives no details of the transaction. Inter alia, it provides that the mortgage "is security for payment to the ANZ of the secured money and for the performance of my obligations under this mortgage and under any collateral securities", this latter reference being adequate to cover the cross-guarantee executed on the same day as the mortgage. 13So far as the minute is concerned, Vlado said that no such meeting took place. Indeed, his evidence was that no meetings of directors occurred. 14Vlado gave evidence that he never signed any other documents having connexion with the bank including, in particular, the 2008 guarantee by Frenmast. He said that his relationship with Robert soured and he has not spoken to him since Christmas 2006. 15Steve Tiricovski made an affidavit which was read in the proceedings. He also gave evidence and was cross-examined. He was a director of Frenmast from 29 June 2001 concerned with the operational side of the business. He was absent from Australia for most of the period between 2001 and 2006. He recalls one formal meeting of the Board in that time, the purpose of which was to remove Robert from the Board because he (Steve) was unhappy as he was not kept informed about the business. He was quite sure that this was not the meeting to which the minute of 7 September 2001 referred. He said that at that time he was out of the country and he found out later about what had happened. 16Robert was a director of Frenmast from 2 December 1997 until 23 November 2009, during which time he was also secretary. 17I accept the evidence of Vlado and Steve that there was no meeting of directors as referred to in the minute signed by Robert. Their evidence on this point is essentially uncontradicted except by the minute itself. The general and unqualified character of the minute strikes me as most unlikely unless it were a requirement of the bank. 18However, so far as the 2001 guarantees are concerned, there is no real doubt to my mind that they were indeed executed validly by Frenmast and by Vlado on his own account. Having, as it were, delegated to Robert responsibility for making arrangements as he thought it necessary in the interests of Frenmast he implicitly authorised him - at least so far as the bank was concerned - to enter into them to the extent that the documents which he signed provided. His decision not to read the documents cannot absolve him from the liability he undertook by virtue of his execution of them. In the circumstances, by his signature he represented to the bank that he understood and agreed with their effect and the bank was entitled to rely on that representation. He did not care to obtain independent advice - whether or not it was suggested that he should - and acted on his decision to place his complete trust in Robert. 19Accordingly, although Vlado did not understand (as I accept he did not) the extent of the obligations created by the 2001 securities and very likely believed them to be far more limited than in fact they provided, the bank was entitled to regard them as validly entered into. In my view the evidence does not justify the inference that Robert acted as agent for the bank in procuring Vlado's signature, such as to give it constructive notice of the misleading statements, if any, made by Robert to Vlado. Certainly, the bank would not have provided the facilities if the documents were not executed but, as I mentioned above, it seems to me that Robert was entrusted by Vlado with responsibility for such arrangements and that Robert was Frenmast's agent for the purpose of effecting them as he thought fit. If Robert misled him as to their effect - as, indeed, is quite possible - I do not see how that can be laid at the feet of the Bank. 20Despite the limited information contained in the memorandum of its officers as mentioned above, the bank did not call either of them for which no explanation was forthcoming. I consider that Vlado's evidence was truthful in the sense that it reflected his actual recollection, although its precise reliability is somewhat doubtful, given the lapse of time. I conclude that the documents were signed much as he described, although it is possible that there was some brief discussion with a bank officer which did not convey the extent of cross-obligations which the documents created. 21The 2008 Frenmast guarantee is in a very different position. The guarantee concerned the debts of AFC and Robert and Slavica (and not RV). There is no supporting evidence at all as to the circumstances in which it came to be created or executed. It may be that Robert, purporting to act on Frenmast's behalf, dealt with the bank to procure it but there is no evidence that he did so. He appears to have signed as a director of Frenmast, but this is speculative as no more than his name appears with a signature that may or may not be his. Merely because the guarantee appears to be very much in his interest does not, to my mind, justify the inference that he in fact acted or purported to act as Frenmast's agent with respect to it. My hesitation in this regard is strengthened by the bank having declined to adduce any evidence of its dealings with Frenmast (through Robert or anyone else), which information is very much within its own knowledge. (I deal below with the possibility that, if the bank dealt with Robert as agent for Frenmast, it was entitled to do so merely on the basis of his being a director.) Vlado denies (and I accept) that the signature purporting to be his as director is his. He denies (and I accept) signing any document that relates to this guarantee. I accept that, by this time, his relationship with Robert had completely broken down. It is clear that his former trust was destroyed. Steve's evidence is to the same effect. I accept his evidence that he did not sign this guarantee and, furthermore, that Frenmast had not decided or agreed to enter into it. 22Vlado's 2001 guarantee of Frenmast's obligations was an "all money guarantee" unlimited as to amount and included the obligations undertaken by Frenmast in respect of its guarantee of AFC, RV, Robert and Slavica. The guarantee provides in clause 19 that the obligations remain in force until discharged by ANZ in writing or Vlado paid ANZ the full amount of the guaranteed money or made other arrangements acceptable to ANZ to pay an agreed sum. 23Neither guarantee obliges the bank to give notice of any variation in the primary debt. However, each of the loan agreements relied on by the bank which varies the loan amounts requires an acknowledgment by the guarantors, in effect, that their securities cover, inter alia, the facilities referred to in the agreement. As the matter is pleaded, however, it is unnecessary for me to determine that this apparently invariable practice had the effect of requiring the bank to give notice. The loan agreements 24By letter dated 13 September 2001 addressed to the directors of Frenmast (incorrectly omitting Steve and adding Slavica) ANZ offered a variable rate "Business Loan" of $923,000 for a maximum term of 15 years for the purpose of refinancing borrowings from an ANZ instrumentality called ANZ Investments, for which the loan funds were obliged to be used unless ANZ's approval in writing to another use was obtained. The loan was repayable by monthly instalments of principal and interest. The securities for the Facilities were listed as follows - (a)cross-guarantee and indemnity between AFC, RV, Frenmast, Robert and Slavica Tiricovski - "to be taken" (but, in fact, already taken); (b)guarantee "unlimited as to amount" by Vlado as guarantor on account of Frenmast, also "to be taken" (but already taken). The securities mentioned in paragraphs (a) and (b) were supported by the following further securities, all "to be taken" - (c)first registered mortgage by Frenmast over the Carlton land; (d)floating charge over all the assets and undertaking Frenmast; (e)floating charge over all the assets and undertaking of AFC; and (f)floating charge over all the assets and undertaking of RV. 25The letter provided for an acceptance by the parties and the document tendered shows that this was signed by Vlado, Robert and Slavica on 13 September 2001 (no reference was made to Frenmast but no point is taken about this). Also part of this document is one entitled "Guarantor acknowledgement" in the following terms - "Each of the following guarantors acknowledges that the securities given, or to be given by us secure all present and future obligations of the clients to ANZ, including obligations in respect of the facilities." This document is signed by Vlado, Robert and Slavica. Although the guarantor acknowledgement refers to "clients" in the plural, the only client referred to in the letter of offer is Frenmast, to whose directors it is addressed. Nor is there any acknowledgment by AFC or RV. 26On 23 November 2004 the bank wrote a "letter of offer" to Robert and Slavica, and Frenmast who were described as clients. So far as Robert and Slavica were concerned, the "facility amount" was specified as "$3,155,000 (increase of $600,000)". The term was described as extending the "Interest Only term for another 12 months commencing from the expiry of current Interest Only term ... [upon] expiry convert to Principle [sic] & Interest ... [the maximum term of the loan being] 15 years, expiring on the date of 15 October 2018". The loan was for the purpose of purchasing new equipment. Usual conditions are stipulated as to interest, fees and the like. In respect of Frenmast, the facility amount is specified as $920,784.84, being the balance as at 23 November 2004 of the "existing loan". The term is stipulated in the same way as that in respect of Robert and Slavica's facility, although it will be noted that the original loan agreement did not provide for any period of interest only payments. The purpose of the loan was also that of purchasing equipment. 27The securities for the facilities, described as "already held" were listed as follows - (a)cross-guarantee between AFC, RV, Frenmast, Robert and Slavica; supported by (b)guarantee unlimited as to amount by Vlado as guarantor on behalf of Frenmast; supported by (c)mortgage by Frenmast over the Carlton land; (d)floating charge over the assets and undertaking of Frenmast; (e)mortgage by Robert and Slavica over property in Kurnell; (f)mortgage by Robert and Slavica over property at Taren Point; (g)floating charge over the assets and undertaking of AFC; (h)floating charge over the assets and undertaking of RV; and (i)(this appears to be duplicated paragraph) floating charge over the assets and undertaking of Frenmast. This letter of offer states that it is "signed for and behalf of Frenmast..." by one of its authorised representatives, identified as Robert. It was also signed by Robert and Slavica. The guarantor acknowledgement by AFC was signed by Robert as "one of its directors", as also were those of RV and Frenmast. 28On 8 March 2006 a "variation letter" was addressed by ANZ to the directors of Frenmast, specifying in this respect Robert and Slavica only. The facilities are described, in respect of Frenmast for the purchase of commercial property at Carlton, as the current balance of $917,414.87 for a maximum terms of 10 years and 4 months from the date of the advance and, in respect of Robert and Slavica the facility having a current balance of $3,150,017.85 for a maximum term of 13 years and eight months commencing from the date of advance. The mode of repayment was varied to interest only for the first 5 years and then principal and interest. 29Described as "already held", the security was listed as follows - (a)cross-guarantee between Frenmast, Robert, Slavica, AFC and RV. supported by (b)mortgage by Frenmast over the Carlton land; (c)mortgage by Robert and Slavica over the property at Kurnell; (d)mortgage by Robert and Slavica over the property at Taren Point; (e)floating charge over the assets and undertaking of Frenmast; (f)floating charge over the assets and undertaking of AFC; (g)floating charge over the assets and undertaking of RV. 30The document which is exhibited in the proceedings is not executed by any party. It should be noted that the cross-guarantee of Frenmast is not specified to be supported by the personal guarantee of Vlado which, in light of the listing of the securities that are relied on to support that obligation, gives rise at least to the possible inference that it was not intended to be relied on in respect of the specified loans. The affidavit of Mr Tayabali, ANZ's Manager, Lending Services states that this document constituted a "variation of the loan" between ANZ and Frenmast. 31On 9 May 2006 a letter of offer addressed to the directors of Frenmast, (again identified as Robert and Slavica) concerned an overdraft facility of $300,000 to AFC, to continue at least until the review date, of which the next was 24 May 2006. The client is specified to be AFC, and the acceptance is to be given by AFC alone. The securities for the facility were listed as - (a)guarantee from Robert in respect of the obligations of Frenmast, "limited to $917,415" - to be taken; supported by (b)guarantee from Robert and Slavica in respect of the obligations of AFC, limited to $300,000 - to be taken; supported by (c)guarantee and indemnity unlimited as to amount by Vlado as guarantor on account of Frenmast - already held; supported by (d)cross-guarantee between Frenmast, AFC, RV, Robert and Slavica - "to be released" (emphasis added); supported by (e)guarantee from AFC and RV in respect of the obligations of Frenmast unlimited as to amount - to be taken; supported by (f)guarantee from AFC and RV in favour of ANZ in respect of the obligations of Robert and Slavica unlimited as to amount - to be taken; supported by (g)mortgage by Frenmast over the Carlton property - already held; (h)mortgage by Robert and Slavica over the property at Taren Point - already held; (i)mortgage by Robert and Slavica over the Kurnell property - already held; (j)floating charge over all the assets and undertaking of Frenmast - already held; (k)floating charge over all the assets and undertaking of AFC - already held; (l)floating charge over all the assets and undertaking of RV - already held. 32The letter provided that the offer was to be accepted by signing the duplicate of the letter and returning it to the bank. (I interpolate that clause 6.1 of the 2001 guarantee provides that the guarantee and indemnity remain in force "until ... ANZ discharges both in writing". Although it was submitted otherwise by the bank, I consider that this letter is a sufficient writing for the purpose of this provision.) Attached to the exhibited document is a formal acceptance dated 16 September 2006 executed by Robert and Slavica as director and director/ secretary on behalf of AFC. A guarantor acknowledgement attached to the letter of offer that "the securities given, or to be given by us secure all present and future obligations of the client(s) to ANZ, including obligations in respect of the facilities" was executed on 16 May 2006 by AFC (signed by Robert and Slavica) and RV (signed by Robert and purportedly by Vlado), and also signed as individuals by Robert, Slavica and purportedly by Vlado. Vlado says (and I accept) that the signatures purporting to be his are not. This letter, also said by Mr Tayabali to constitute a variation of the loan between Frenmast and the bank, raises the question whether that variation comprehended the obligations of Frenmast under the 2001 cross-guarantee, thus releasing it, upon acceptance of the bank's offer, from its guarantees of the obligations of the other debtors. The effect of this release would have been that Vlado was left guaranteeing only the direct debts of Frenmast. Although the client is specified as AFC, plainly enough the release of the Frenmast cross-guarantee directly affected that company's obligations. It is not surprising, therefore that the letter was addressed to Frenmast's directors, although its form expected that the offer would be accepted by AFC. Also for obvious reasons, it was thought necessary that guarantee acknowledgments should be made by AFC, RV and Robert and Slavica, whose positions were also affected by the release of Frenmast from its cross-guarantee. 33On 8 November 2006 the bank addressed an annual review and variation letter to Robert and Slavica for signature and return, which listed the "facilities available" as follows - Client Facility Facility Limit Frenmast ANZ Business Loan (Variable) $917,414.87 (current balance as at 8.11.2006) Robert and Slavica Tiricovski ANZ Business Loan (Variable) $3,150,017.85 (current balance as at 8.11.2006) AFC Overdraft Facility $300,000 (current limit)