Breona Pty Ltd v Gosatti

Issues

1. The defendants were represented by a solicitor when their defence was filed on 23 June 2022 and when they each swore an affidavit on 23 September 2022. They appeared self-represented at the final hearing. By their defence the following issues are raised: 1. The defendants deny that Miluc Civil "was a customer of [FC Securities]" as alleged in the statement of claim or that they were "guarantors of the facility provided" to Miluc Civil. 2. The defendants contend that FC Securities and/or its assignees cannot recover from them, in respect of any debt of Miluc Civil, interest calculated after the date of winding up of the company. 3. The defendants deny the plaintiff's allegations that FC Securities "advanced credit to [Miluc Civil] in accordance with the Agreement", that it was a term of the Agreement that FC Securities "agreed to loan to [Miluc Civil] the amounts specified in the Tranche Schedules (Loan Amount)" and that by the Agreement Miluc Civil "agreed to repay the Loaned Amount plus fees and charges by instalments to FC Securities". 4. The defendants dispute that Miluc Civil "defaulted under the Agreement" by failing to pay to FC Securities three amounts alleged to have fallen due on 29 October, 29 November and 29 December 2017. 5. The defendants dispute that they are bound by the guarantee clause in the Agreement, on the basis pleaded at pars 9 and 10 of their defence as follows: 9 The [defendants] do not admit paragraph 12 of the Statement of claim [in which their liability as guarantors is alleged] and say further that: a The [defendants] did not have the opportunity to and/or were not required to obtain independent legal advice prior to execution of the guarantee; b The funder [FC Securities] did not notify the [defendants] of the limit of any guarantee and/or any adverse matters which [were] unknown to the [defendants]; and c The guarantee is unenforceable by reason of failure of consideration and/or not expressed to be a Deed and does not comply with the provisions of law which [limit] the sum of the guarantee. 10 In the circumstances, the [defendants] say that it would be unconscionable for the plaintiff to enforce any guarantee against the [defendants]. 1. The defendants dispute the efficacy of the assignment of the alleged debt from FC Securities to Finstro Securities Pty Ltd on 31 May 2019 and from that company to the plaintiff on 22 July 2020, because they assert that they did not receive notice of the assignments in accordance with s 12 of the Conveyancing Act 1919 (NSW).
2. Issues (1), (3) and (4) require close consideration of the Agreement and of the transactions between FC Securities and Miluc Civil that the plaintiff contends were effected under its terms. There are serious questions to be determined as to whether the transactions conformed to the Agreement and, hence, whether any resulting indebtedness of Miluc Civil is properly to be characterised as an obligation pursuant to the Agreement, so as to be a subject of the defendants' guarantee. The alternative hypothesis is that the transactions were not effected in accordance with the Agreement and that any resulting debt of Miluc Civil is not one to which the defendants' guarantee pertains.
3. Issues (1), (3) and (4) will be considered first. The examination of the Agreement that those issues call for will provide context for consideration of issues (2), (5) and (6). There are three additional matters that the defendants sought to raise, outside the pleadings, as follows.
4. First, Mr Gosatti deposed that when he received the Agreement for execution he procured his wife's signature by mixing the document with "various NAB documents that also required signing at the time", so that she would not understand that she was placing her signature on a guarantee. Adjacent to the place where Mrs Gosatti signed as an individual guarantor is the signature of Faith Gosatti, Mr Gosatti's mother, as witness. She worked as a receptionist at Miluc Civil's office. Mr Gosatti deposed that his mother did not witness the signing by Mrs Lucy Gosatti but that he arranged for her to sign as witness at a later time. Mrs Lucy Gosatti deposed that she was unaware of having signed the Agreement.
5. In oral submissions after the evidence had closed, Mrs Gosatti sought to invoke the defence of non est factum. That was not pleaded and I would not allow an amendment for the purpose of introducing the defence at such a late stage. The plaintiff may have been able to adduce additional evidence and to cross-examine both of the defendants on that subject if there had been notice of it. The plaintiff may have subpoenaed Faith Gosatti, who was not called by the defendants.
6. Prima facie, the defence would have been untenable in any event. On her own evidence taken at its highest, Mrs Gosatti did not exercise reasonable care for her interests. She signed the Agreement in three places: twice as a director - of Miluc Civil and of another corporation controlled by the defendants, which was the third guarantor - and once as an individual guarantor. Each signature space was clearly labelled, in print, under the line where the signature was to be placed. The lines on which Mrs Gosatti signed on behalf of the two corporations were labelled "Director" and the line on which she signed in her personal capacity was labelled "GuarantorSignature - Lucy Gosatti". To sign in such circumstances without ascertaining the contents of the document amounts to carelessness, which has not been qualified or rebutted by any other evidence. Further, if Mrs Gosatti signed in the matter she has described, without seeing what the document was, there is no evidence to suggest that FC Securities was on notice of that. FC Securities' innocence with respect to the circumstances of signing is another reason why the plea of non est factum would fail: Petelin v Cullen (1975) 132 CLR 355; [1975] HCA 24.
7. Secondly, in closing submissions both defendants sought to invoke the Contracts Review Act 1980 (NSW). No claim for relief under that Act had been made in the defence. I would not permit an amendment to raise such a claim after the evidence had closed, when the plaintiff's opportunity to make a case in opposition had passed.
8. Thirdly, in closing submissions Mrs Gosatti claimed that she did not benefit from the loan to Miluc Civil, that she was not involved in the company's daily operations, that she did not have a direct interest in finance provided to the company by the plaintiff and that as Mr Gosatti's wife she had an emotional dependence upon him. She submitted that the plaintiff knew or should have known of those circumstances and that it therefore acted unconscionably in procuring her personal guarantee without taking active steps to ensure that she understood the transaction or at least that she had received independent legal advice about it.
9. Mrs Gosatti cited Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3, Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 and several other cases in support of her argument. In the latter case, Gaudron, McHugh, Gummow and Hayne JJ stated the applicable principles as follows (emphasis added): [31] The principles applied in Yerkey v Jones do not depend upon the creditor having, at the time the guarantee is taken, notice of some unconscionable dealing between the husband as borrower and the wife as surety. Yerkey v Jones begins with the recognition that the surety is a volunteer: a person who obtained no financial benefit from the transaction, performance of the obligations of which she agreed to guarantee. It holds, in what we have called the first kind of case, that to enforce that voluntary transaction against her when in fact she did not bring a free will to its execution would be unconscionable. It holds further, in the second kind of case, that to enforce it against her if it later emerges that she did not understand the purport and effect of the transaction of suretyship would be unconscionable (even though she is a willing party to it) if the lender took no steps itself to explain its purport and effect to her or did not reasonably believe that its purport and effect had been explained to her by a competent, independent and disinterested stranger. And what makes it unconscionable to enforce it in the second kind of case is the combination of circumstances that: (a) in fact the surety did not understand the purport and effect of the transaction; (b) the transaction was voluntary (in the sense that the surety obtained no gain from the contract the performance of which was guaranteed); (c) the lender is to be taken to have understood that, as a wife, the surety may repose trust and confidence in her husband in matters of business and therefore to have understood that the husband may not fully and accurately explain the purport and effect of the transaction to his wife; and yet (d) the lender did not itself take steps to explain the transaction to the wife or find out that a stranger had explained it to her.
10. Mrs Gosatti submitted that her position in the present litigation is within the "second kind of case" so described. However, the facts that would have to have been established before the Court would intervene on the grounds of unconscionable conduct of that type were not pleaded. The only references in the defence to unconscionable conduct are as quoted, above, from pars 9 and 10. There is no allegation, nor any evidence in Mrs Gosatti's affidavit, that she did not understand the purport and effect of the transaction. She just claims that she did not know she had entered into any transaction. There is no allegation or evidence that Mrs Gosatti gained nothing from the Agreement. The defence and the evidence are silent as to the extent of Mrs Gosatti's financial stake in Miluc Civil and as to what she might have gained from the company receiving finance. As these matters were not pleaded the plaintiff was not on notice to inquire into them or to adduce evidence that may have excluded the application of Yerkey v Jones and Garcia v National Australia Bank Ltd. Accordingly, this aspect of Mrs Gosatti's does not arise for the Court's decision. Leave to amend to allege unconscionable conduct upon this basis could not have been granted in view of the obvious prejudice that would be caused to the plaintiff.

Entry into the Debt Funding Facility Agreement

1. In 2017 Miluc Civil carried on business as a civil engineering and earthworks contractor. Ms Lucy Gosatti resigned as a director of the company with effect from 8 September 2017 but Mr Michael Gosatti continued in office until the winding up commenced. On 15 February 2017 Miluc Civil entered into a contract with the Water Corporation of Western Australia to carry out substantial works at Bridgetown, about 250 km south of Perth, for a contract price of just under $3.4 million. On 28 February 2017 the company secured a second contract with the Water Corporation for works at Bruce Rock, approximately 240 km east of Perth. The total amount payable under the second contract was nearly $4.8 million. Each contract provided for Miluc Civil to render periodic invoices to the Water Corporation for progress claims.
2. In March 2017 Mr Gosatti sought funding for Miluc Civil from FC Securities. He was introduced to that source of finance by Mr Ed Gilfilan who has been variously described in the evidence as a broker and as a franchisee of FC Securities. The application was made online. Mr Gosatti opened a web page hosted by FC Securities. The functionality of the website was governed by a system named TIQ. In accordance with FC Securities' business model and practice, Mr Gosatti entered, in designated fields on the webpage, personal identification particulars for himself and for Mrs Gosatti, Miluc Civil's Australian Business Number ("ABN") and other details, information concerning the amount of funding required, details of the company's bank account and particulars of its contracts with the Water Corporation. The TIQ system was so configured that it would automatically transmit enquiries, based upon the particulars provided, to the Australian Securities and Investments Commission and to a credit reference agency, whereby the identity of Miluc Civil and its directors and their credit standing could be the subject of an initial automated check.
3. Funding in the order of $1 million was sought in Mr Gosatti's online application. At that level, FC Securities required that the contracts with the Water Corporation should be submitted. It also required financial information concerning Miluc Civil for the last full financial year and management accounts for the then current financial year. The application was considered by a credit committee. A facility limit of $1 million was adopted. The TIQ system was capable of generating a Debt Funding Facility Agreement, utilising a pro forma that was stored in a database. The system could automatically insert into the pro forma particulars of the Merchant (as the applicant for finance was described), particulars of the directors and guarantors and other details required to complete the Agreement. The system could also generate a covering letter, addressed to the applicant for finance, to enclose the Agreement with instructions for execution. On 29 March 2017 those capabilities of the TIQ system were activated and a Facility Agreement with all particulars inserted was posted to the defendants for execution. They duly signed it and returned it to FC Securities, whereupon it was recorded in the company's records as having been approved and entered into on 10 April 2017.

Provision for alternative Facility Types

1. The Agreement is drafted in unusual, unclear and in some respects contradictory terms. In clauses that will be quoted fully hereunder, the defendants promised to guarantee and indemnify FC Securities "against any failure by [Miluc Civil] to perform its obligations" (cl 27). The obligations guaranteed are only those assumed by Miluc Civil under the Agreement. The dealings by which Miluc Civil received funds from FC Securities, to be described fully later in these reasons, appear to have departed significantly from what is provided for in the Agreement, on any view of its meaning.
2. The Agreement comprised 30 clauses over two pages, followed by two pages for execution then a series of attachments. The preamble and cll 1 and 2 are as follows (with some emphasis added): Background We are prepared to make available to you a debtor financing facility in respect of Approved Customer Agreements. Rules of Interpretation 1 This document (including the Facility Particulars at the end of this document) must be read together with, and incorporates, the terms and conditions in Annexure A (the T&Cs), which taken together form the agreement between us. 2 Capitalised terms have the meanings given to those terms in the T&Cs or the Facility Particulars.
3. The 30 clauses are replete with capitalised terms that are defined in Annexure A-Terms and Conditions. Some of the capitalised terms are assigned numerical values or other details in the first attachment to the Agreement, which is a schedule entitled Facility Particulars. The drafting of the 30 clauses is apparently intended to enable this single pro forma agreement to be utilised for two distinct types of funding. That is made clear from the outset in cl 3, as follows (with some emphasis added): Funding 3 The Facility Type will be specified in the Facility Particulars and may involve us acquiring Debts due to you (Debtor Acquisition) or providing financial accommodation to your Customers to pay specific Debts (Debtor Funding).
4. Capitalised terms used in the above clauses are assigned the following definitions in par 14.1 of Annexure A-Terms and Conditions: Customer means a customer of your business. Debt means money owing to you by Customers. Merchant/you/your means the Merchant named in the Facility Particulars which incorporate these T&Cs [in this case, Miluc Civil].
5. The only Customer of Miluc Civil that FC Securities was informed about in connection with the Agreement was the Water Corporation. If FC Securities were to acquire from Miluc Civil debts due from the Water Corporation, as envisaged for the first Facility Type described in cl 3 (Debtor Acquisition), then Miluc Civil would receive payment not by way of loan but as consideration or purchase price for the debt. Miluc Civil would be obliged to assign the Water Corporation debt to FC Securities, which thereafter would have no claim against Miluc Civil but would have to look to the Water Corporation for payment of the assigned debt. The legal rights and obligations that would thereby arise would be different in fundamental respects from those that would arise from FC Securities "providing financial accommodation to your Customers to pay specific Debts", as envisaged for the second Facility Type described in cl 3 (Debtor Funding). Under that Facility Type the borrowed funds would be used by the Water Corporation to pay a "specific Debt" owed by it to Miluc Civil, which thereafter would no longer be owed money by its Customer - and nor would it owe money to FC Securities. Under transactions of that nature, FC Securities would become a lender to the Water Corporation and that entity would come under the obligation of repayment of the loan.
6. In order for such "financial accommodation" to the Water Corporation to be enforceable against that entity, FC Securities would have to procure its execution of the Agreement as a party thereto or, alternatively, enter into separate lending agreements with the Water Corporation on an invoice-by-invoice basis. Neither of those things was done, notwithstanding that the parties expressly elected for the Facility Type to be Debtor Funding, as explained under the following subheading. The fact that FC securities did not make the Water Corporation party to the Agreement, or otherwise separately contract with it, does not negate the parties' election. As will be seen, after execution of the Agreement FC Securities and Miluc Civil proceeded to effect transactions that bore no relation to any of the clauses. The failure to join the Water Corporation as a party or to contract with it separately is just one of many respects in which the principal lender embarked upon a course of dealing with the principal borrower that did not fall within either of the alternative forms of of financing envisaged in the Agreement.

The parties elected for a Debtor Funding Facility Type

1. The Facility Particulars in the first annexure to the Agreement include the following: Facility Type: Debtor Funding That particular, in combination with cl 3, clearly stipulates that the facility provided to Miluc Civil under the agreement is one whereby financial accommodation will be provided to the Water Corporation to pay specific debts owed by it to Miluc Civil. The plaintiff has submitted that there has been a mistake in the insertion of the particular and that it should specify "Debtor Acquisition". However, no application has been made for rectification in equity. That would require clear and convincing proof that when the Agreement was made the parties shared a common intention to elect the Debtor Acquisition alternative and that, through a common mistake, that intention was not reflected in the way in which this item in the Facility Particulars schedule to the agreement was completed: Maralinga Pty Ltd v Major Enterprises Pty Ltd (1973) 128 CLR 336; [1973] HCA 23 at 346 (Menzies J) and 350-351 (Mason J); Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85; [2016] HCA 47 at [46] (Kiefel J) and [103] (Gageler, Nettle and Gordon JJ). The requirement of clear and convincing proof was elaborated upon by Campbell JA in Franklins Pty Ltd v Metcash Trading Ltd (2009) 76 NSWLR 603; [2009] NSWCA 407 at [451]-[461]. In the present case there is no evidence at all of a shared intention that this Agreement should provide for a Debtor Acquisition facility, or of a common mistake with respect to the specification for Debtor Funding.
2. The plaintiff submits that the entry "Facility Type: Debtor Funding" is so obviously a mistake that the Court could correct it to give effect to "the intention of the parties as a matter of construction". That submission requires consideration of the limitations of what is sometimes referred to as rectification by construction. In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 Leeming JA explained the principles as follows (some citations omitted): [6] At common law, if the error is clear, and it is also clear what a reasonable person would have understood the parties to have meant, then the mistake may be corrected as a matter of construction. This is old law. Lord St Leonards said in Wilson v Wilson (1854) 5 HL Cas 40 at 66-67; 10 ER 811 at 822: "Now it is a great mistake if it is supposed that even a Court of Law cannot correct a mistake, or error, on the face of an instrument: there is no magic in words. If you find a clear mistake, and it admits of no other construction, a Court of Law, as well as a Court of Equity, without impugning any doctrine about correcting those things which can only be shown by parol evidence to be mistakes - without, I say, going into those cases at all, both Courts of Law and of Equity may correct an obvious mistake on the face of an instrument without the slightest difficulty." […] [8] Two conditions are necessary in order to correct the contractual language in this manner: (a) that the literal meaning of the contractual words is an absurdity and (b) that it is self-evident what the objective intention is to be taken to have been: see Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184 at [117]-[119], approving National Australia Bank Ltd v Clowes [2013] NSWCA 179; 8 BFRA 600, where it was stated at [34]: "Where both those elements are present ... ordinary processes of contractual construction displace an absurd literal meaning by a meaningful legal meaning." […] [10] The court must be satisfied of those matters to a high level of conviction. To use the language of Dixon CJ and Fullagar J in Fitzgerald v Masters (1956) 95 CLR 420 at 426-427; [1956] HCA 53, it must be "clearly necessary in order to avoid absurdity or inconsistency". As this Court said in Miwa Pty Ltd v Siantan Properties Pte Ltd [2011] NSWCA 297 at [18], the test of absurdity is not easily satisfied. Any question of absurdity or inconsistency must be identified according to established principles, by reference to the text of the agreement as understood in its factual and legal context: Wyllie v Tarrison Pty Ltd [2007] NSWCA 184 at [46]; Newey v Westpac Banking Corporation [2014] NSWCA 319 at [85]. […] As Lord Hoffmann explained, the court does "not readily accept that people have made mistakes in formal documents": Chartbrook Ltd v Persimmon Homes Ltd [2009] AC 1101; [2009] UKHL 38 at [23].
3. Neither of the two essential conditions for rectification by construction are present. There is no absurdity about the specification of the Facility Type as Debtor Funding and there is no evidence of anything in the dealings between the parties or in other surrounding circumstances that would make it self-evident that, objectively, they must have intended to specify Debtor Acquisition.
4. The plaintiff relies upon the following further entry in the Facility Particulars: Security to be provided by Merchant: A security interest over all debts assigned to us. We may register a security interest on the Personal Property Securities Register including registration under the classes [three classes specified]. It is submitted that that particular is not consistent with the entry "Facility Type: Debtor Funding" because it envisages assignment of debts from Miluc Civil to FC Securities, which would be required under the Debtor Acquisition alternative in cl 3 but would have no place in connection with Debtor Funding. However, the item is incapable of serving any useful purpose even for that Facility Type, in that it requires Miluc Civil to grant security over debts that it would be assigning outright if this were a Debtor Acquisition facility (see cl 16, below). As a putative indication of an intention different from that which the parties expressed in the particular, "Facility Type: Debtor Funding", the particular of "Security to be provided by Merchant" is inconclusive and ineffectual.
5. I reject the plaintiff's submission that the Agreement should be construed as providing that the Facility Type would be Debtor Acquisition.

Clauses referable to the two Facility Types, respectively

1. It is necessary to set out the remaining 27 clauses of the Facility Agreement for the purpose of examining which clauses may be referable to which of the two alternative Facility Types identified in cl 3 and whether the Agreement as a whole provides for any other type of facility that might, unlike the two already mentioned, give rise to an obligation of Miluc Civil to repay funds to FC Securities such that the defendants could be liable as guarantors in respect of that obligation. In the following reproduction of the clauses there are inserted in brackets some definitions of capitalised, terms taken from par 14.1 of Annexure A-Terms and Conditions: 4 The Facility Limit is specified in the Facility Particulars. We may vary this Facility Limit from time to time by notice to you. 5 […] any Fees and Charges will be calculated in the same manner as set out in the Calculations. We may change the amount of Fees and Charges by amending the Calculations and giving you at least 30 days' prior written notice of such change. 6 You can request a Tranche and accept the specific terms of a Tranche, through the System, by following the User Guide. [Calculations means the formulas used to calculate financial terms applying to a Facility such as the Tranche Amount, Instalment amounts, interest, and Fees and Charges. The Calculations may be amended by us from time to time giving you not less than 30 days' prior written notice. Example relations are shown in Schedule 1. Tranche means each funding amount we provide to you or to your Customers. Tranche Amount means the amount of each Tranche.] Customer Agreements 7 You must provide information regarding the Debt onto the System. [System means the web based system made available by us to you.] 8 You must upload to the System such information regarding the Customer and the Customer Agreement as we specify from time to time. [Customer Agreement means an agreement entered into by a Customer to pay Debt.] 9 Customers must enter Customer Agreements using the Customer Portal. [Customer Portal means the part of the System used by the Customer to accept a Customer Agreement.] 10 After we are satisfied with the Debt and that a Customer Agreement has been validly entered, and after we have received all information we require regarding the relevant Customer Agreement and the relevant Customer, we will inform you whether the Customer Agreement is an Approved Customer Agreement which is eligible for funding under this Facility. We will consider our eligibility criteria from time to time when we decide to accept or decline a Customer Agreement. [Approved Customer Agreement means a Customer Agreement which we have approved for funding.] 11 From time to time we can set a customer concentration limit or other restriction in respect of funding provided to some Customers. Tranches 12 On or about each date on which a Customer Agreement becomes an Approved Customer Agreement, we will send you a Tax Invoice and a Tranche Schedule. [Tax Invoice means an invoice issued by us to you. Tranche Schedule means the document we provide you which sets out the particulars relating to a Tranche.] 13 The Tranche Schedule will set out the specific terms relating to a Tranche. You must comply with all the terms of a Tranche Schedule. 14 The Customer Portal and Customer Agreement will set out the Instalments and the corresponding dates for payment by a Customer. [Instalment means a scheduled payment due by you under the Facility or by a Customer under a Customer Agreement including the payment of an Invoice Amount. Invoice Amount means the amount payable under a Customer Invoice or Tax Invoice. Customer Invoice means an invoice addressed to a Customer relating to debts due to you.] 15 If: • the Customer accepts the terms in respect of the relevant Customer Agreement through the Customer Portal; and • all the conditions precedent to a Tranche set out in the T&Cs have been satisfied, we will pay you the amounts set out in the relevant Tranche on the relevant Settlement Date(s) provided that any Instalment due by the Customer has been paid into our nominated account. 16 If the Facility Type is Debtor Acquisition, on the Initial Settlement Date, by virtue of us providing the Tranche, you assign to us all your right, title and interest to the relevant Debt without the need for any further act of assignment. You authorise us to notify the Customer of the assignment. 17 lf the Facility Type is Debtor Funding, on the Initial Settlement Date we will fund the Customer's payment of a Debt. You acknowledge that we will appropriate the proceeds of such funding on your behalf and account to you in accordance with the Agreed Net Proceeds. 18 You acknowledge that we can deduct the Security Amount from the Tranche to secure your obligations to us under this agreement and the Customer's obligations under the Approved Customer Agreements. [Security Amount means that amount determined in accordance with the Calculations and deducted from the Agreed net proceeds on the Initial Settlement Date and released to you in accordance with the Tranche Schedule.] Instalments 19 We will collect the amounts of the Instalments directly from the Customer. All Instalment amounts are required to be paid by the Customer directly into our nominated account. 20 If a Customer makes a payment of an Instalment or any other amount relating to a Customer Invoice which forms part of an Approved Customer Agreement to you, you must deposit the money received into our nominated account within two Business Days of receipt. Until payment you must hold any such amount on trust for us until such money is received by us. Proceeds Adjustments 21 We and you must make such payments to each other as are specified in the Tranche Schedule and as otherwise required so that you have received the Agreed Net Proceeds. If at any time you have received more than the Agreed Net Proceeds, you must pay to us the excess within two Business Days of our demand. [Agreed Net Proceeds means those amounts in respect of each Approved Customer Agreement which are to be paid by us to you, determined by using the Calculations set out in the Tranche Schedule.] 22 You acknowledge that the Agreed Net Proceeds will vary depending on the Facility Type and specific terms of the Approved Customer Agreement. 23 If we do not receive amounts due to us as set out in a Customer Agreement or Tranche Schedule on the relevant due dates, arrears will be payable by you. We will calculate and notify you of each such amount and the date it is payable through the System. If the amount of arrears due is not paid to us in the manner set out in the Calculations, you must pay us interest at the Arrears Rate. 24 If a Customer Default Event subsists for a period that exceeds 90 Days from the Settlement Date (or another date determined by us), we can require you by not less than five Business Days written notice to pay to us the Total Outstanding in relation to the relevant Tranche. Facility Term 25 This Facility will commence on the Commencement Date and continue for as long as we agree to provide Tranche Schedules and you agree to enter into Customer Agreements with Customers. Security 26 You and any Guarantor must provide the Security (if any) stated to be provided in the Facility Particulars to secure performance of the Documents. Guarantee 27 The Guarantor guarantees and indemnifies the Funder against any failure by the Merchant to perform its obligations. The full terms of the guarantee are set out in the T&Cs. Read those terms carefully. Your Acknowledgements 28 Taken together, the Documents constitute a binding agreement between you and us. 29 You must comply with all the terms and conditions displayed on the System and only use the System in accordance with the User Guide. 30 You must comply with any Special Conditions.
2. The draughtsman of this document was very optimistic to have tried to combine in one pro forma an agreement for FC Securities to purchase debts from a Merchant and an alternative agreement for FC Securities to lend money to the Merchant's Customers, with the election between those alternatives to be made by an entry in the Facility Particulars. The draughtsman does not appear to have recognised that the Debtor Funding alternative, involving provision of "financial accommodation to your Customers", would require that the Customers should be parties to the Agreement or should otherwise separately contract with the lender. It is not apparent why it should have been thought useful or practical to attempt such a difficult drafting exercise, rather than to prepare two separate pro forma agreements from which FC Securities would choose one to suit the type of funding that it wished to provide in each case. Whatever the reason for the drafting endeavour, the result cannot be regarded as an unqualified success.
3. Some of the clauses appear to be exclusively referable to Debtor Acquisition, as defined in cl 3: for example, cll 14, 16, 19, 20. Other clauses seem referable to Debtor Funding: see cl 17. Many provisions appear to be either incompatible with either Facility Type, or, while not being incompatible, do not have any apparent role to play in relation to either Facility Type: see cll 15, 18, 21-24. Some clauses are capable of fulfilling a purpose in relation to either Facility Type: see cll 7-11.
4. The plaintiff made this submission: [All] of the clauses of the [Agreement], save for cl 16, apply in respect of a "Debtor Funding" facility. The document must be construed as a whole: Australian Broadcasting Commission v Australasian Performing Right Association Ltd [1973] HCA 36; (1973) 129 CLR 99, 109. A construction that makes the various parts of an instrument harmonious is preferable. If possible, each part of an instrument should be construed so as to have some operation: Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 [42(10)]. Preference will be given to a construction supplying a congruent operation to the various components of the contract as a whole: Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 [16]. Each of the clauses ought to be construed as if they have work to so, and have work to do and.
5. Those principles are undoubtedly sound but the Court has found it impossible to apply them with any benefit to this instrument. Harmonious construction of the provisions is subverted by their explicit dedication to the creation of discordant types of legal relations. Not all of the provisions are amenable to being assigned a field of operation for either type. "Congruent operation to the various components of the contract as a whole" is, on the face of the Agreement, not intended or achievable. The terms envisage an election between the two different Facility Types, thereby explicitly accepting that some clauses may be incompatible with, or at least not intended to apply to, one or other of the alternatives. One cannot confidently discern, on an objective basis, for either one of the alternatives what is the full extent of the clauses that should be treated as operative for that Type, or which ones should be treated as applicable only to the other alternative. Ultimately the inability to arrive at an overall construction of the Agreement is not an impediment to determining the plaintiff's claim because, as explained below, the transactions pursuant to which Miluc Civil's debt is alleged to have arisen were clearly not effected in conformity with any coherent subset of the Agreement's provisions.

Parties' obligations under clauses applicable to Debtor Funding

1. Applying the 30 operative provisions to the circumstances of this case, a Customer Agreement is an agreement by the Water Corporation to pay Miluc Civil a specific Debt. A Customer Agreement is, therefore, distinct from an invoice rendered by Miluc Civil, which would be unilaterally issued and might be disputed by the Water Corporation. The effect of cll 7-10 is that, in order to oblige FC Securities to provide funds, Miluc Civil would first have to "upload to the System" information as required by FC Securities concerning an agreement by the Water Corporation to pay a Debt (cll 7 and 8). Next, the Water Corporation would have to visit FC Securities' website, online, and enter particulars of its agreement to pay the specific Debt to Miluc Civil. It would do so by interacting with a part of the website referred to in the Agreement as the Customer Portal (cl 9). The third step would be for FC Securities to satisfy itself concerning the Debt and the Customer Agreement and then to inform Miluc Civil that the Customer Agreement is Approved.
2. Up to this point in the Agreement, it would be expected that there would follow clauses requiring FC Securities to provide the amount of the Debt owing under the Approved Customer Agreement. In line with earlier clauses, for cases where the Facility was to be of the Debtor Acquisition type one would expect there to be provision for that amount to be paid to Miluc Civil to purchase the invoice debt, perhaps subject to a discount. For cases where the Facility was to be of the Debtor Funding type, one would expect a provision that the amount of Debt be advanced to the Water Corporation by way of "financial accommodation" to enable the Water Corporation to discharge its obligation to Miluc Civil on the invoice. Instead of either of those alternatives, cll 12 provides that approval of a Customer Agreement is to be followed by FC Securities issuing a Tax Invoice and a Tranche Schedule. Having regard to the definition of a Tranche as "a funding amount we provide to you or to your Customer", the issuance of a Tranche Schedule, in the nature of a payment advice, is understandable. However, the issuance of a Tax Invoice, requiring money to be paid by the Merchant to FC Securities, is incongruous and not coherent.
3. Amongst the 30 clauses quoted above there is not created any obligation of the Merchant to pay anything to FC Securities, for which FC Securities could raise an invoice. The Merchant's substantive obligations in consideration for the provision of funds are contained in cll 16 and 17. If the Facility Type is Debtor Acquisition, Miluc Civil assigns the Water Corporation's debt to FC Securities. If the Facility Type is Debtor Funding, Miluc Civil accepts that funds advanced by FC Securities to the Water Corporation will be appropriated to Miluc Civil in discharge of the invoice Debt. Either way, the Water Corporation becomes indebted to FC Securities. Miluc Civil does not.
4. The plaintiff made the following submissions in an attempt to explain how the Agreement would operate on the basis that there was an election for a Debtor Funding type of facility: First, cl 3 must be read with and is narrowed by cl 17. Clause 17 provides that [FC Securities] will fund the Customer's payment of a Debt. It is not any Customer of Miluc. The Customer approved via the credit application was Water Corporation WA. The ordinary and proper construction of cl 17 is that [FC Securities] agrees [it] will fund to Miluc Water Corporation WA's payment of a Debt. This construction is consistent with the balance of the clause because Miluc acknowledges that [FC Securities] will appropriate (ie take) the proceeds of such funding on Miluc's behalf. Although clumsy drafting, the clear intent of the clause is that proceeds of the Tranche is paid to the you (Miluc), and not to the Customer (Water Corporation WA). This is what occurred in the present case.
5. I reject the proposition that the above is "the ordinary and proper construction of cl 17". The introductory words of that clause are: "If the Facility Type is Debtor Funding …". The capitalised expression Debtor Funding is explained only in cl 3, where it is said to consist of "providing financial accommodation to your Customers to pay specific Debts". Clause 17 is therefore concerned with circumstances in which FC Securities agrees to "provide financial accommodation to" a Customer, such as the Water Corporation. It is meaningless to speak of FC Securities having agreed to "fund to Miluc Water Corporation's payment of the Debt". In that paraphrase, insertion of the words "to Miluc" is an unsupportable and ineffective addition by counsel. It cannot conceal the fact that when "Debtor Funding" was selected, the agreement provided only for funding of the Water Corporation.
6. The plaintiff's submission continues as follows: The only real difference between a Debtor Acquisition facility and a Debtor Funding facility is that Miluc continued to own the Debt as there was no automatic assignment (as cl 16 does not apply to a Debtor Funding facility) [footnote omitted]. The objective purpose of the document construed as a whole in the commercial context it was entered was to provide a debtor funding facility to Miluc with a limit of $1,000,000 in respect of amounts owed to it by Water Corporation WA. To construe clause […] 17 as [FC Securities] promising to provide financial accommodation (ie a loan) to Miluc's customers (Water Corporaion WA), instead of Miluc itself, would be inconsistent with the objective purpose of the document.
7. There is a greater difference between the two Facility Types than that acknowledged in the first sentence of this passage. Fundamental differences are described at [20]-[21], above. Contrary to the last sentence of the above submission, cl 17 is to be construed as "promising to provide financial accommodation (ie a loan) to Miluc's customers (Water Corporation WA), instead of Miluc itself" because cl 17 applies in cases where Debtor Funding is selected as the Facility Type and because a promise "to provide financial accommodation to your Customers" is exactly how Debtor Funding is defined in cl 3.

Clauses and annexure relating to Tranche Schedules

1. Clause 13 purports to require that Miluc Civil "comply with all the terms of a Tranche Schedule". The question arises, what scope of obligations may FC Securities impose upon Miluc Civil by the terms of a Tranche Schedule? Are there any bounds? On my construction of the Agreement, Miluc Civil would be obliged to comply with the terms of a Tranche Schedule to the extent that they may be directed to the provision of Debtor Funding, being the type of Facility that the parties agreed upon by their election in the Facility Particulars.
2. Schedule 1 to the Agreement contains the following details for the calculation of Fees and Charges, as provided for in cl 5: Details Rate Example Calculation Tranche Amount (Customer Invoice Amount) 100% $10,000 Advance Amount 80% $8,000 Less - Advance Fee 4.95% [1.65%] $495 Advance Amount 75.05% [78.35%] $7,505 Security Amount or Retention 20% $2,000 Less Discount Rate (Tranche Amount x Discount Rate) 2% $200 Less Arrears eg payment is made on or after Day 31 and is made on Day 60 (60-30) x 0.1% x Tranche amount $300 Agreed Net Proceeds (Security Amount less Discount rate less Arrears) $1,500

1. The definition of Calculations in Annexure A - Terms and Conditions is quoted under cl 16 at [24] above. By force of the definition the above schedule is "an example". As it is attached to the Agreement and referred to in its operative provisions, Schedule 1 is capable of assisting in the construction of those provisions. However, the line entries in Schedule 1 are not contractually binding in specific terms, either as to type or as to numerical value because they constitute only an example that may be departed from. The various items from which values are nominated in the Schedule are not supported by any clauses that oblige one or other of the parties to pay, deduct or retain the nominated amounts or percentages.
2. Mr Shaun Swinton was the head of credit for FC Securities in 2017. He gave evidence that FC Securities varied the Advance Fee down to 1.65% for the course of its dealings with Miluc Civil. The figures in square brackets in the Rate column of the table above did not appear in the Agreement as executed. They have been inserted for ease of reference and to acknowledge Mr Swinton's evidence.
3. Schedule 2 to the Agreement is a "Form of Tranche Schedule" in which illustrative figures have been inserted, based upon the Fees and Charges in Schedule 1. Schedule 2 is not referred to in any of the 30 clauses quoted above or in Annexure A - Terms and Conditions. There is no clause that authorises FC Securities to issue a Tranche Schedule under cll 12 and 13 with content such as that which appears in Schedule 2. The following are material extracts from the schedule, with heading numbers added for ease of reference: This Tranche Schedule and Tax Invoice is issued pursuant to the Debtor Funding Facility Agreement between: Daphne Citizen Pty Ltd […] (Merchant); and First Class Securities Pty Ltd […]; and [Processing Agent] 1 Invoice and Customer Details Merchant: Daphne Citizen Pty Ltd Customer Flamingo Flowers Pty Ltd […] Customer Invoice Amount $10,000 including GST of $909.09 Invoice Date Customer invoice issued on 31-05-2016 and due on 31-07-2016 2 Tranche Details Customer Invoice Amount $10,000 Less Security Amount $2,000 Less upfront Fees and Charges $495 Net Tranche Amount $7,505 3 Scheduled Security Amount - Per Period of Term Customer Invoice Amount $10,000 Indicative Repayment Obligation $8,200 Security Amount Payable to Merchant upon full payment of the Customer invoice Amount by the Customer to the Processing Agent $1,800 4 Transaction Costs & Fees Payable Upfront Advance Fee $495 Indicative Discount Rate 2% Indicative Discount Charge $200 (assuming the payment will be received in 30 days) Total $695 5 Application Dates & Scheduled repayment Commencement Date 27-07-2016 Tranche Settlement Date 28-07-2016 Tranche amount $8,000 Discounting Charge $200 Scheduled Payment Date 31-07-2016 or the date the Customer Invoice is successfully received from the Customer Total Scheduled repayment $8,200
4. In dealings with Miluc Civil relating to its invoices to the Water Corporation, if FC Securities' should issue and act upon a combined Tax Invoice and Tranche Schedule on the pattern of Schedule 2, the effect would be as follows: 1. In respect of an invoice issued by Miluc Civil for, say, $10,000, FC Securities would pay to Miluc Civil $7,505, being 80% of the invoiced amount less an Advance Fee of 4.95% of the invoiced amount. That payment would be referred to as the Net Tranche Amount. See heading 2 above. 2. The Water Corporation would pay the full invoice amount to FC Securities' related corporation, the Processing Agent - presumably pursuant to a direction from Miluc Civil. 3. Provided the invoice was paid by the Water Corporation within 30 days, upon receipt FC Securities would retain 80% of the invoiced amount (of which all but the Advance Fee had earlier been paid to Miluc Civil) plus 2% of the invoiced amount. The 2% is referred to as the Indicative Discount Rate. See heading 5 above. 4. On payment by the Water Corporation to the Processing Agent, 20% of the invoiced amount, less the 2% Indicative Discount Rate, would be paid out to Miluc Civil. The amount of that payment in this example would be $1,800, referred to in Schedule 2 as the Security Amount. See heading 3 above.
5. The scheme of Schedule 2 assumes that Miluc Civil would direct the Water Corporation to pay the invoice amount to FC Securities' related corporation, the Processing Agent. It does not assume or depend upon assignment of the Debt by Miluc Civil to either FC Securities or the Processing Agent. The economic effect of implementing the scheme of Schedule 2 would be that Miluc Civil would receive a form of financing of a principal amount of $8,000, for a term of 30 days, at the cost of an Advance Fee (4.95% of $10,000) and an Indicative Discount Rate (2% of $10,000). That equates to 8.6875% of $8,000 for 30 days or 105.7% per annum. If the Advance Fee were to be charged at 1.65% the cost of this finance would be reduced to 4.5625% for 30 days or 55.5% per annum. The amount advanced by FC Securities to Miluc Civil, 30 days ahead of the due date of the invoice issued to the Water Corporation, would be less than 80% of its invoice but the percentage fees and charges in Schedule 2 would be calculated on the full amount of the invoice.

Schedule 2 does not constitute agreed terms of finance

1. The operative provisions of the Agreement provide no warrant for FC Securities to issue Tranche Schedules on the pattern of Schedule 2, or to make payments to Miluc Civil, or to charge that company fees or interest, or to make deductions, or to require repayments. The Form of Tranche Schedule in Schedule 2 does not reflect, in any respect, any part of the Agreement constituted by the 30 clauses quoted above or the Terms and Conditions in Annexure A to the Agreement. The Terms and Conditions are for the most part expressed in general terms and do not alter or qualify the 30 clauses by which the contractual rights and obligations of FC Securities and Miluc Civil are defined.
2. I do not accept a construction of the Agreement whereby Schedule 2 is to be treated as defining the scope of obligations that FC Securities may impose upon Miluc Civil by issuing a Tranche Schedule. That approach would result in FC Securities being able to displace entirely, by the issue of such a Schedule, both the Debtor Acquisition and the Debtor Funding alternative models of financing for which the 30 operative clauses provide. It would enable FC Securities unilaterally to substitute a radically different model, creating rights and obligations that are nowhere described in the Agreement, other than in Schedule 2 itself. Such a profound addition to or modification of the operative provisions is not achieved by a schedule that is merely attached to the Agreement, without reference elsewhere in the document to its existence, let alone reference to any operative effect that it is intended to have. As can be seen from the extracts of Schedule 2 quoted above, it refers to a fictional Merchant, a fictional Customer and a fictional Customer Invoice. Although the title of Schedule 1 is, in part, "Tranche Schedule," the fictional example cannot reasonably be construed as an elaboration of what the parties agreed might be contained in a Tranche Schedule issued under cll 12 and 13. In order to be validly issued in accordance with those clauses, a Tranche Schedule would have to give effect - and only give effect - to substantive obligations to be found in the 30 operative provisions, according to the Facility Type chosen.

Transactions purportedly effected under the Agreement

1. Mr Swinton gave evidence that Mr Gosatti was provided with login information and a password in order to access Miluc Civil's account on FC Securities' online System. To obtain finance in respect of an invoice issued to the Water Corporation, he would "select a button called 'create transaction' under the Debtor Funding Facility Agreement". This would take him to another webpage where he could enter the invoice number and the ABN of the Customer. Mr Swinton said that these details: would populate through and provide a sample calculation of how much would be required to be repaid.
2. According to Mr Swinton's evidence there would then "drop-down" an "invoice upload feature". This would enable Mr Gosatti to upload to the website his company's invoice to the Water Corporation. Mr Swinton said that in his understanding the uploading of the invoice constituted the uploading and entering of information about the Customer and Customer Agreement as required by cll 7 and 8. He gave these answers: Q Then at clause 8 it says, "You must upload to the system such information regarding the customer and the customer agreement as we may specify from time to time." Now is that a reference to uploading the invoice? A That's correct. Q In terms of the practice adopted by FCS as at 2017, the customer agreement would be an invoice? A That is correct. […] HIS HONOUR Q. What's the customer portal on this TIQ system? A. The customer portal is the access provided to the merchant to go through and create tranches or funding requests. [PLAINTIFF'S COUNSEL] Q. Is that a separate page in the TIQ system or is this-- A. Yes, that's correct. HIS HONOUR Q. You say access provided to a merchant. The merchant in this case under this agreement of April 2017 is Miluc Civil, but clause 9 of these terms prescribes that the customers must enter customer agreements using the customer portal. How does a customer of Miluc Civil get into a customer portal? A. In this particular instance I don't believe that occurred.
3. Clause 9 stipulates a prerequisite to the approval of the Customer Agreement. The prerequisite is significant to the operation of subsequent clauses because it is the step by which the Customer would signify its agreement that the relevant invoice is payable to Miluc Civil and that the Water Corporation will either accept an advance from FC Securities to fund payment of the invoice (Debtor Funding) or that it acknowledges assignment of the debt to FC Securities (Debt Acquisition). The effect of Mr Swinton's evidence is that this prerequisite was not fulfilled, throughout the relevant course of dealings in 2017.
4. Mr Swinton said that when a "sample calculation" was displayed after Mr Gosatti had uploaded the customer invoice details, the System would enable him to "hit submit and continue". Thereafter FC Securities' credit team would review the information that he had submitted online and treat it as a "tranche request". If approved, Miluc Civil would be notified accordingly by email. When this evidence was led from Mr Swinton, counsel framed the questions as if FC Securities' actions corresponded with cl 10 of the Agreement. The actions described by the witness bear no relationship to cl 10. Further, as the prerequisite in cl 9 was not observed, the whole exercise of entering and uploading data that took place as Mr Swinton explained was concerned with invoices to Miluc Civil's Customer, not with Customer Agreements as referred to in cl 8. The agreement was not followed or implemented. For ease of reference, I repeat definition of the latter term: Customer Agreement means an agreement entered into by a Customer to pay Debt. I have considered the difference between a Customer Agreement and an invoice at [29] above.
5. To substantiate the debt of Miluc Civil the plaintiff tendered three documents, each entitled Tranche Schedule and Tax Invoice. These follow the pattern of Schedule 2 to the Agreement. They concern three separate amounts paid to Miluc Civil in relation to three invoices that the company had rendered to the Water Corporation. The essential parts of FC Securities' Tranche Schedule in respect of funding for Miluc Civil's invoice No 935 to the Water Corporation are as follows, with heading numbers added for ease of reference: 1 Invoice and Customer Details Customer Water Corporation Invoice 935 Customer Invoice Amount $101,288.55 including GST […] Invoice Date Invoice issued on 01-10-2017 and due on 29-10-2017 2 Tranche Details Invoice Amount $101,288.55 Less Security Amount $20,257.71 Less upfront Fees and Charges $1,671.27 [1.65% of the Invoice Amount] Net Tranche Amount $79,359.57 3 Scheduled Security Amount - Per Period of Term Invoice Amount $101,288.55 Indicative Repayment Obligation $83,056.61 Net Security Amount Payable to Merchant upon full payment of the invoice Amount by the Customer to the Processing Agent $-1,519.33 4 Transaction Costs & Fees Payable Upfront Advance Fee $1,671.27 Indicative Discount Rate 2% Indicative Discount Charge $2,025.77 Total $3,697.04 5 Application Dates & Scheduled repayment Commencement Date 03-10-2017 Tranche Settlement Date 03-10-2017 Tranche amount $81,034.84 Discounting Charge $2,025.77 Scheduled Payment Date 29-10-2017 or the date the Invoice is successfully received from the Customer Total Scheduled repayment $83,056.61
6. FC Securities' Tranche Schedules for the two other payments to Miluc Civil that are in issue in these proceedings followed the same format. They concerned Miluc Civil's invoice No 938 for $401,733.20, issued on 29 October 2017 and due on 29 November 2017, and invoice No 941 for $454,539.25 issued on 29 November 2017 and due on 29 December 2017. In accordance with those Tranche Schedules the amounts advanced by FC Securities to Miluc Civil were as follows: Inv No Date of Tranche payment Net Tranche Amount $ 935 1 Oct 2017 79,359.57 938 27 Oct 2017 314,757.95 941 29 Nov 2017 356,131.49 Total $705,237.01

1. According to the schedules, the principal amounts repayable by Miluc Civil (being the Tranche Amount under heading 5 in each schedule and not including the Discounting Charge) and the dates on which those amounts were due are as follows: Inv No Date Tranche repayment due Tranche Amount $ 935 29 Oct 2017 81,030.84 938 29 Nov 2017 321,386.56 941 29 Dec 2017 363,631.40 Total $766,048.80

1. By its conduct, Miluc Civil may have accepted funding upon the terms of the Tranche Schedules issued to it. The company may have become liable to make repayments to FC Securities in accordance with the Schedules, in the principal amounts tabled above. Miluc Civil may also have become liable to pay interest on those amounts, from the due dates, at the rate of 0.1% per day specified in the Facility Particulars attached to the Agreement. However, assuming that to be so, no part of any of those liabilities of Miluc Civil could be said to have arisen pursuant to the terms of the Agreement, for the reasons given at [46]-[47] above.

Scope of the guarantee

1. In addition to cl 27, the defendants' obligations as guarantors are more fully spelt out in par 9 of the Terms and Conditions at Annexure A, as follows: 9 Guarantee Guarantors - Make sure that you understand your obligations as a Guarantor before giving the guarantee. By giving a guarantee, you ore obliged to pay money if the Merchant does not. You should consider obtaining legal or financial advice (or both) before entering the guarantee. (a) The Guarantor guarantees to us due and punctual performance by you of your obligations under this document and indemnifies us against all loss, damage, costs and expenses suffered or incurred by us because of any breach by you of any of the terms of this document. (b) This guarantee and indemnity is a continuing guarantee and indemnity (it being the intent of the Guarantor that the guarantee and indemnity will be absolute and unconditional in all circumstances) and is irrevocable. (c) This guarantee and indemnity will not be considered as wholly or partially discharged by the payment at any time of any money on account or by any time, credit, indulgence, or concession extended by us to you, the Guarantor, or any other person. (d) This guarantee and indemnity is a principal obligation and will not be treated as ancillary or collateral to any other obligation to the intent that this guarantee and indemnity is enforceable although any other obligation arising between us and you or any other person becomes in whole or part unenforceable for any reason. (e) This guarantee and indemnity is in addition to and not in substitution for any other rights which we may have. (f) The Guarantor acknowledges that it has not relied on any warranty or representation made by or on behalf of us to induce it to enter this guarantee and indemnity and that it has made and will continue to make without reliance on us its own independent investigation of the financial condition and affairs of you and assessment of the credit worthiness of you and that we have no duty or responsibility at any time to provide the Guarantor with any information relating to the financial condition and other affairs of you or any other person. (g) We may release or compromise the obligations of any one or more Guarantors, without affecting the liability of the remaining Guarantors. (h) The Guarantor must provide the Security (if any) stated to be provided by the Guarantor in the Facility Particulars to secure performance of this guarantee and indemnity.
2. Neither cl 27 of the principal provisions of the Agreement nor cl 9 of Annexure A gives rise to an obligation of the guarantors to indemnify FC Securities or its assignee, the plaintiff, against the defaults of Miluc Civil with respect to obligations it assumed under the Tranche transactions, which were entered into beyond the scope of the Agreement in respect of which the guarantee was given. The plaintiff submits that cl 9(d), by deeming the defendants to be principal obligors, is effective to make them liable for debts assumed by Miluc Civil under variations to the Agreement. It is submitted that the parties varied the Agreement by conduct. It has not been shown that the defendants, in the capacity of guarantors, were parties to such conduct. Further, I do not accept the characterisation of what occurred between the principal creditor and principal debtor as variations of the Agreement. The alleged debt arose from a course of dealing that took place outside the field of operation of the Agreement and wholly disregarded it rather than varied it.

Issue (2): accrual interest after the winding up of Miluc Civil

1. The plaintiff alleges that Miluc Civil's contractual obligation to pay 0.1% per annum on any overdue amount under the Tranche Schedules arises from a combination of cl 23, the definition of Arrears Rate par 14.1 Annexure A and the entry "Arrears Rate: 0.1% per day" in the Facility Schedule. If, contrary to my conclusion, the principal debts of Miluc Civil tabled at [54] above arise under the Agreement, and interest at 0.1% per day also arises thereunder, then the defendants as guarantors are liable to pay the interest so long as the principal is outstanding. The continuing accrual of interest, as an unpaid obligation of Miluc Civil, was not halted by the winding up of the company. Miluc Civil's default and the guarantors' liability in respect of it have continued to mount. The defendants cited no legal authority for the contention that the liability for unpaid interest ceased to accrue with the winding up and I know of no such authority.

Issue (5): the defendant's general pleading of unconscionable conduct

1. Paragraphs 9 and 10 of the defence make no reference to s 12CA or s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). The pleading must be taken to invoke only the general law concerning unconscionable conduct, as expounded in such cases as Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 and Kakavas v Crown Melbourne Limited (2013) 250 CLR 392; [2013] HCA 25.
2. The particulars of unconscionable conduct provided in par 9 of the defence have either not been proved or are not sufficient to engage the Court's jurisdiction to grant relief. As to particular a, I find that the guarantors were not denied an opportunity to obtain independent legal advice. By the introductory words immediately preceding the guarantee provision in Annexure A - Terms and Conditions, quoted at [56] above, the defendants were expressly invited and encouraged by FC Securities to obtain independent legal advice. It is true that they were not "required" to do so but that provides no support for the allegation of unconscionable conduct. As to particular b in par 9 of the defence, the defendants have not identified any "limit of the guarantee" or "adverse matters which [were] unknown to [them]". As to particular c, consideration was given for the guarantors' promises, namely, FC Securities' assumption of the obligation to provide finance to the guarantors' company, in accordance with one or other of the Facility Types identified in the Agreement.
3. If, contrary to my conclusion, the defendants have become liable under the guarantee for moneys owing by Miluc Civil as a result of its transactions with FC Securities in 2017, they have not established an entitlement to be relieved of such liability on the grounds of unconscionable conduct of FC Securities.

Issue (6): notice of the assignments

1. Paragraph 13.10 of Annexure A to the Agreement is in these terms: 13.10 any notice may be served by delivery in person, by post, or electronically to the address or number of the recipient most recently notified by the recipient to the sender.
2. That provision is consistent with s 170(1)(b) of the Conveyancing Act 1919 (NSW), which provides that any notice required under that Act shall be sufficiently served "if left, or sent by post to the last known residential or business address in or out of New South Wales of the person to be served". Section 12 of that Act provides that an assignment of a debt of which express notice in writing has been given to the debtor […] shall be, and shall be deemed to have been effectual in law […] to pass and transfer the legal right to such debt […] from the date of such notice.
3. If, contrary to my conclusion, the debts of Miluc Civil arise under the Agreement, then I am satisfied that those debts and the consequent debts of the defendants as guarantors were assigned by FC Securities to Finstro Securities Pty Ltd by a Loan Book Sale Agreement of 31 May 2019. I am satisfied that notice of that assignment was given to the defendants by letter dated 13 April 2022 posted to the defendants on that day, addressed to them at 35 Ash Grove, Duncraig, Western Australia. Finstro Securities Pty Ltd held the assigned debts pursuant to the terms of a trust and from 30 June 2020 it held them on a different trust. The change of trust did not affect the legal title. Although an instrument was executed to reflect the change, it is of no consequence for present purposes. With effect from July 2020, Finstro Securities Pty Ltd retired as trustee of the relevant trust and the plaintiff was appointed in its place. At that time an assignment of all debts arising under the Agreement was effected from Finstro Securities Pty Ltd to the plaintiff. Notice of that assignment was given to the defendants by letter dated 21 April 2022 posted to the defendants that day, addressed to the same address at Duncraig, Western Australia.
4. The address to which the notices of assignment were sent was as recorded in the Facility Particulars to the Agreement. I accept Mr Swinton's evidence about how those particulars were entered by Mr Gosatti on FC Securities website and "populated" into the Agreement. On that evidence I am satisfied that 35 Ash Grove, Duncraig is the address notified to the plaintiff by the guarantors. Both defendants deposed that they ceased to reside at that address from about August 2020 and that they have not had access to the property since that time. Be that as it may, they gave no evidence of having notified FC Securities of any change of address prior to 13 or 22 April 2022. Accordingly, when the notices of assignment were served by post, 35 Ash Grove, Duncraig was the address "most recently notified" for the purposes of par 13.10 of the Terms and Conditions. Both defendants denied having received the notices in April 2022. They deposed that they were unaware of the notices until they saw them attached to an affidavit of Ms Wazir affirmed on 23 August 2022, filed in the proceedings on behalf of the plaintiff. Their lack of awareness is irrelevant to the sufficiency of service in view of the operation of par 13.10 of Annexure A, s 170 of the Conveyancing Act and s 160(1) of the Evidence Act 1995 (NSW).
5. Independently of the sufficiency of the notifications that were given by posting the letters of 13 and 22 April 2022, the requirement of notice under s 12 of the Conveyancing Act was satisfied by service upon the defendants of the amended statement of claim in these proceedings: Grizonic v Suttor [2011] NSWSC 471 at [30] (Brereton J). By either or both of those forms of notification, the sequential assignments were perfected in law.

Orders

1. In accordance with these reasons the following orders will be entered: 1. Verdict and judgment for the defendants. 2. The plaintiff is to pay the defendants' costs of the proceedings.

DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 26 April 2023