87 The plaintiff submitted that, notwithstanding a finding that the Loan Agreement was no longer in force and that the $18 million loan agreement was applicable, the Jammals are still bound by the guarantees by reason of the fact that they were continuing guarantees which, inter alia; were irrevocable and continued and remained in force until the whole of the Guaranteed Monies were paid in full; and applied to any future balance of the Guaranteed Monies (cl 2.6(a) and (c)).
88 The Guaranteed Monies were specifically defined as "all sums of whatever nature due and payable under the Transaction Documents". The "Transaction Documents" were defined as "this agreement" (the Guarantee) "as read with the Mortgage and the Caveat". The Mortgage and Caveat were over the Fairfield Land. The Recitals made clear that the Guarantee was in respect of the $500,000 "in terms of the Loan Agreement". The "amount owing" under the Mortgage was defined very broadly (extracted earlier) and included all amounts "payable" or "owing" or "remain unpaid" by OSS to the plaintiff in "connection with any agreement". The Guaranteed Monies were specifically tied to that Loan Agreement and were only the $500,000 "in terms of that Loan Agreement".
89 The plaintiff relied upon the provisions of clause 2.6 (Continuing Guarantee) and clause 2.8 (Liability Preserved) (both extracted earlier) of the Guarantees to submit that the Jammals' guarantees of OSS liability under the Loan Agreement continue in respect of OSS liability under the $18 million Loan Agreement. I disagree with that submission. The character of the "Guaranteed Monies" disappeared once the Loan Agreement was brought to an end by entry into the $18 million loan agreement. The Mortgage was no longer the same Mortgage and there were new Caveats provided. This $18 million loan agreement was not a replacement of obligations or arrangements, or a release or amendment as provided for in clause 2.8 of the Guarantees. This new loan agreement with the requirement to provide new mortgages including new mortgages over the Fairfield Land was a different regime altogether to that which pertained in 2005 between the plaintiff and OSS. The Guarantees were specifically linked to the Loan Agreement, the Mortgage that had been provided over the Fairfield Land in 2005 and the Caveat that the plaintiff was entitled to register it on the Fairfield Land at that time.
90 In support of the plaintiff's submissions that the guarantors are still liable, Mr Young relied on Winstone Limited v Bourne [1978] 1 NZLR 94; Wood Hall Limited v Pipeline Authority (1979) 141 CLR 443; and Burnes v Trade Credits Limited (1981) 34 ALR 459. In Winstone Limited v Bourne, directors of a construction company were guarantors for a loan to the company. A variation of the loan agreement was executed, which the directors themselves signed. The directors' claim that they had not assented to the variation in their personal capacity as guarantors was rejected by Mahon J on the basis that it was clear on the facts that they knew of and consented to the deed variation, in spite of it arising in their capacity as directors. In Wood Hall Limited v Pipeline Authority, a bank provided guarantees for a contractor in respect of a contract for the construction of a pipeline. The guarantees contained a provision that the liability of the bank would not be discharged or impaired by reason of any variation of the construction contract. In those circumstances, the High Court held that there was no discharge of the bank's liability under the guarantee on the basis of variation. In Burnes v Trade Credits Limited, a guarantee provided that it would continue in the event of variation of the mortgage or further advances under the mortgage. A variation to the mortgage was made to which the guarantor did not consent. In construing the guarantee, the Privy Council held that increasing the rate of interest was a variation that went beyond what was contemplated by the guarantee and the guarantors were discharged from liability under the guarantee.
91 It is understandable that Mr Young would rely upon these authorities in advance of the Court making findings of fact in relation to the applicable loan agreement. However having regard to the fact that the original Loan Agreement was brought to an end, rather than modified or varied and that the "Guaranteed Monies", as understood in the guarantees no longer existed, and that the principal debtors were different, these authorities are inapplicable certainly in relation to the guarantees provided by Nadia and Therese. It may be suggested that because Tony and Joseph were parties to the $18 million loan agreement, they consented to expanding their guarantees to include the new principal debtors, including themselves, as being subject to their obligations under the guarantee, and that the definition of "Guaranteed Monies" under the guarantee was to somehow include the different amount and the different interest regime. There is no evidence to suggest that the parties intended this was to occur. It would also seem a little absurd that Tony and Joseph would each be providing a guarantee of their own principal liabilities.
92 There was no request for any guarantees in relation to the new regime under the $18 million loan agreement. The entry into the loan agreement and the provision of the mortgages was a very rushed exercise to stave off a winding up application in respect of OSS. There were additional parties to the relationship with the plaintiff and I have no doubt that Mr Banovec saw the prospect of obtaining the additional mortgages as a much more secure position for the plaintiff. I am satisfied Mr Banovec was totally comfortable with the provision of the mortgages and the parties intended that the guarantors be discharged.
93 I am satisfied that Loan Agreement (and if it had been applicable, the $1.4 million Loan Agreement) was terminated by the entry into the $18 million Loan Agreement in February 2006. I am also satisfied that the guarantors were discharged.
Section 127 of the Corporations Act
94 The defendants submitted that the loan agreements and Mortgages were not executed in accordance with s 127 of the Act. It was submitted that they were signed by Mr Banovec either personally or purportedly as agent for the plaintiff and in either case by their manner of execution they did not operate as a deed so as to bind the plaintiff. It was also submitted that as the mortgage instruments could not take effect as deeds, to the extent the mortgages were granted to secure the past indebtedness of the defendants, they failed because no consideration, or only past consideration, was ever given for the grant of the mortgages. Had the instruments of mortgage been registered, the mortgages would have acted as a deed: s 36(11) of the Real Property Act.
95 Section 127 of the Act provides that a company may execute a document without using a common seal: if the document is signed by two directors; or a director and a company secretary of the company; or, for a proprietary company that has a sole director who is also the sole company directory, that director. Where a document appears to have been signed in accordance with s 127(1) of the Act, a person may assume that the company has duly executed that document (ss 128, 129(5)). This "indoor management rule" provides protection to those parties dealing with a company and prohibits a company from asserting that the document was not "duly executed" by it. In this particular instance it is the defendants who wish to challenge that assumption at a time after which they have taken the benefit of the assumption by receiving the $500,000 loan pursuant to the Loan Agreement. I am not satisfied that this challenge is sound. Mr Banovec was entitled to act as the Company's agent and to enter into contracts on behalf of the Company (s 126(1) of the Act). The evidence establishes that he was the plaintiff's agent in Australia and that he was authorised to enter into contracts on its behalf. That entitled him to enter into those contracts "without using a common seal" (s 126(1)). In any event he was, it seems to me, authorised as the agent to sign the document as agent for two directors of the company thus complying with s 127(1)(a) of the Act.