GE Commercial Corporation (Australia) Pty Ltd v Gregory Ronald Wallis and Anne Marie Wallis

The documents

1. On 25 January 2010 Allianz offered a facility to the customer, the terms and conditions were set out in a letter of offer and a document I shall call the Standard Terms. The defendants (with other related entities, presently irrelevant) guaranteed the customer's performance of its obligations under the facility, in particular that concerning repayment of the advanced funds. Clause 31 of the Standard Terms and Conditions specified the events of default which triggered the obligations under the guarantees. As mentioned, the company's ceasing to trade was such an event. I should mention for completeness that the original loan was 2.5 million dollars, which was increased to 3.5 million dollars by variation deed of 29 July 2010.
2. The clauses as to assignment are as follows - 43.1 Your rights under the Facility Agreement are personal to you and may not be assigned without our consent. You may not create a Security Interest over those rights without our consent. 43.2 We are entitled to assign or otherwise deal with the Facility Agreement or any of our rights or obligations under it in any way we consider appropriate. If we do this, you may not claim against the assignee or other Entity any right of set-off, abatement, counter claim or other rights you have against us. At our request you must sign and deliver to us or any other Entity we specify any document we reasonably require for this purpose.
3. The relevant terms in the guarantee and indemnity are - ASSIGNMENT 7.6 Allianz is entitled to assign, novate or otherwise deal with this document or any of its rights or obligations under it in any way Allianz considers appropriate. If Allianz does this, no Guarantor may claim against the assignee or other Entity any right of set-off, abatement, counter claim or other rights a Guarantor has against Allianz. At Allianz's request each Guarantor must sign and deliver to Allianz or any other Entity Allianz specifies any document it reasonably requires for this purpose.
4. On 21 June 2013 the plaintiff wrote to the customer and each defendant a letter (the "notice") in the same terms stating, inter alia, that Allianz had sold its invoicing discount business to the plaintiff, in connection with which, Allianz had novated and assigned to the plaintiff on and from 15 April 2013 its rights and obligations under the contract and related documents which had been entered into by the company and the defendants. The purpose of the notice was to inform various parties of the novation and assignment and direct that all payments falling due to the plaintiff and all the obligations in favour of the plaintiff were to be performed on and from the date of the notice. Each notice contained an acknowledgement "[confirming] your acceptance of, and agreement to, the novation and assignment described in this notice." The notices to the company and to Mr Wallis as guarantor were both signed by him. However, the notice to Mrs Wallis was not, in the result, signed by her. It is worth noting, at this point, that, for over a year, invoices were sent by the company to the plaintiff for payment under the facility and the plaintiff made those payments.
5. The deed effecting the sale by Allianz of its invoice discount business to the plaintiff recited at the outset - D Each Customer has consented to the novation of each Contract to which it is a party in accordance with the terms of the relevant Contract. E The parties to this deed have agreed to the assignment of each Customer Security, each Guarantor and each Guarantee Security in accordance with the terms of this deed. F Each Customer and each Guarantor has consented to the assignment of each Customer Security, each Guarantee and each Guarantee Security to which it is a party in accordance with the terms of the relevant Customer Security, Guarantee or Guarantee Security (as applicable).
6. The effect of other clauses, which it is not necessary to set out, is that the "Customer" consists of the original debtors, the "Contract" is the facility agreement, and the "Guarantee" is the guarantee executed by the defendants, each of whom is also the "Guarantor" within the meaning of the deed. The deed provides specifically for the assignment and novation of the facility agreement, securities and guarantees.
7. As it happened, each of the company and Mr Wallis indeed had signed an "acceptance of and agreement to the novation and assignment" to the plaintiff of the facility and the guarantee. Although Mrs Wallis had declined to sign the notice, the plaintiff's case is that she had consented in advance by the clauses of the guarantee set out above, to the assignment and the novation of the contract and guarantee.

The issues

1. The plaintiff relies on the provisions in the Standard Terms and the guarantees concerning assignment and novation, which are set out above. Mr Dowdy, counsel for the plaintiff, submits that these clauses amount to prospective authorisation of both assignment and novation citing, in particular, Leveraged Equities Limited v Goodridge (2011) 191 FCR 71, where the court dealt with this issue (at [299] ff), which arose from the view of the primary judge that it was not possible for one party to a contract to prospectively authorise a novation that might be unilaterally made by the other party. Jacobson J (with whom Finkelstein and Stone JJ agreed) concluded that the primary judge's approach could not be supported (ibid at [316]) and resolved the question of principle in favour of the proposition that a contracting party is able to authorise the other party unilaterally to novate the contract to a third party in future. The remaining question was whether the original contract gave such authority. The relevant clauses, which differed somewhat from those in the present case, provided as follows - [21.2] The Bank may assign, transfer, novate … and can otherwise deal in any manner … [with] all or any part of the benefit of this agreement and any of its rights, remedies, powers, duties and obligations under this Agreement to any person, without the consent of the Borrower, the Securities Owner and/or the Director … [21.4] Without limiting the previous positions of this Clause … the Bank and/or its assignee or transferee is entitled to assign its rights and novate its obligations under this Agreement, or any part of this Agreement, to any trustee or manager with any securitisation program.
2. Macquarie (the original financier) had sold its margin lending portfolio to the appellant in such a way to affect a transfer of all the rights and obligations of it and the customers to the plaintiff. At the same time, Macquarie wrote to the defendant notifying him of the sale, stating that the plaintiff was now the lender under the agreement which he had originally entered into with Macquarie. Jacobson J observed that it appears to have been thought by the drafter of clauses 21.2 and 21.4 that express reference to the assumption of liabilities by the new lender and the release of the obligations of the original lender was unnecessary and sufficient attention was not given to the distinction between assignment and novation. However, his Honour concluded that "the references to 'novate', 'obligations' and 'without the consent of the borrower' make it sufficiently clear that the borrower was given prospective consent to all the elements required to give effect to a novation … [and these clauses] make it sufficiently clear that the borrower gave prospective consent to the novation of the [agreement] to any third party who was prepared to assume the obligations of the lender": ibid at [324]-[325]. It followed that the defendant's consent prospectively authorised the plaintiff to take over the facility arrangements which he had with Macquarie. (I mention, though on the view which I take it is unnecessary to decide this point, that, of course, implicit consent can be given by conduct. I have already mentioned the evidence that the customer and, necessarily, the defendants dealt with the plaintiff for a period in excess of a year upon the basis that, indeed, it stood in the shoes of Allianz.)
3. There is a distinction between novation of a contract and its assignment although, as Sackville AJA (Bathurst CJ and Campbell JA agreeing) observed in CSG Limited v Fuji Xerox Australia Pty Limited [2011] NSWCA 335, the results in each case may be similar. His Honour adopted what he described as the "classic statement" of Windeyer J in Olsson v Dyson [1969] HCA 3; 120 CLR 365 at 388 - "That the result of a novation may be the same, or much the same, as if there had been an effective assignment is not surprising. At one stage of the history of our law, when debts were not freely assignable at law, novation was a common method of circumventing the common law rule and accomplishing the same result as can now be accomplished directly by assignment pursuant to the statute. Novation can still be used as it was in earlier times. It can still be the means to the end which the law now allows to be reached by other means. The ultimate distinction, in juristic analysis, between a transfer of a debt by assignment and by novation is simple enough. Novation is the making of a new contract between a creditor and his debtor in consideration of the extinguishment of the obligations of the old contract: if the new contract is to be fully effective to give enforceable rights or obligations to a third person he, the third person, must be a party to the novated contract. The assignment of a debt, on the other hand, is not a transaction between the creditor and the debtor. It is a transaction between the creditor and the assignee to which the assent of the debtor is not needed. The debtor is given notice of it; for notice is necessary to complete an assignment pursuant to the statute or in the case of an equitable assignment to preserve priorities. But the debtor's assent is not required. He is not a party to the transaction."
4. Sackville AJA noted that the distinction had "perhaps" become somewhat blurred "now that it has been held that a party to a contract can prospectively authorise a novation to be made by another party unilaterally" citing Leveraged Equities and Pacific Brands Sport & Leisure Pty Ltd v Underworks Pty Ltd [2006] FCAFC 40; 149 FCR 395, observing that "while it remains the law that the burden of a contract cannot be assigned … a party to a contract may agree in advance that a third party can later assume the obligation to perform the contract" (ibid at [134]). In CSG the clause dealing with "assignment and novation" read as follows - "37.1 Prohibition Subject to clause 37.2, the rights and obligations of each party under this Agreement are personal and must not be assigned, charged, or otherwise dealt without the prior written consent of the other party which may be granted or refused at the absolute discretion of the other party. The Dealer may not assign or novate a customer agreement without Fuji Xerox written approval (which will not be unreasonably withheld/delayed). 37.2 Permitted Assignment Notwithstanding clause 37.1: 37.2.1 Fuji Xerox may by notice to the Dealer assign its rights and obligations under this Agreement (in whole or in part) to any related corporation without such consent; and 37.2.2 in the event that Fuji Xerox terminates this Agreement under 29.1 Fuji Xerox may at its option: require that the Dealer assign to Fuji Xerox or Fuji Xerox nominated third party, any or all Customer maintenance and Software licence agreements (but not lease or rental agreements) in respect of the Products which are in effect at the effective date of termination."
5. In construing these clauses Sackville AJA said: - [136] … [The] construction of cl 37.2.2 has to take account of two other important textual indications as to its intended scope. The first is cl 37.2.1, which provides that FXA may 'assign its rights and obligations under [the Dealership] Agreement" to a related corporation without CSG's consent. Clause 37.2.1 is drafted on the incorrect assumption that an assignment of a contract may include not only the benefit of the contract but its burden. The obvious intention underlying cl 37.2.2 can be given effect only if the word 'assign' is understood to include a novation of FXA's obligation under the Dealership Agreement. So understood, cl 37.2.2 must be read as recording CSG's prospective consent to FXA's unilateral decision to novate the burden of the Dealership Agreement to a related corporation.
6. Other clauses required CSG to cooperate with Fuji in various ways, including the assignment or novation of existing service management agreements to Fuji or a nominated third party should Fuji terminate the dealership agreement. These provisions supported the conclusion that "assignment" included "novation".
7. It is submitted by Mr Dowdy that, although clause 43.2 of the Standard Terms does not, in terms, refer to novation, the reference to assignment of both rights and obligations necessarily implies it. He submits, further, that the terms of this clause amount to consent in advance to the assignment and novation, as it actually happened, of the facility agreement. The obligation of the company to execute any document that might reasonably be required for the purpose of effecting the assignment and novation does not impose a condition on Allianz or, for that matter, the plaintiff to obtain some other (whether a consent or otherwise) before the assignment and novation are effective. So far as the guarantee is concerned, clause 7.6 refers both to assignment and novation. Again, the obligation to provide an executed document which might be requested by Allianz to effect the assignment or novation is merely precautionary and imposes no condition necessary to be fulfilled before the assignment or novation is effective.
8. So far as the deed between Allianz and the plaintiff is concerned, Mr Dowdy submitted that the reference in the recital to a consent by each customer (here, the company and the Wallis' as guarantors) comprehends consent in advance as constituted respectively by clauses 43.2 and 7.6. The mere fact that additional consent, as it happened, was sought is immaterial and cannot affect the proper construction of the recital in question. The Wallis', for their part, denied that they had given their consent as at the date of the deed and Mrs Wallis denied ever having given her consent, obviously a reference to the consent contained in the plaintiff's letters to them of 21 June 2013.
9. It was also submitted by the defendants that the notices of 21 June 2013, in form given under s 12 of the Conveyancing Act 1919 did not comply with that section as they were given by the plaintiff and not by Allianz as the assignor of the relevant rights. However, this is to misunderstand the provision. What is required is an "absolute assignment by writing under the hand of the assignor", which was here constituted by the deed of novation and assignment between Allianz and the plaintiff, "of which express notice of writing has been given". The section does not require that notice to be given in any particular form, except that it must be in writing. Nor, more particularly, does it require the notice to be given by the assignor, here Allianz. There can be no doubt that the notice given by the plaintiff is a notice within the meaning of s 12 of the Act.
10. In her affidavit, Mrs Wallis acknowledges that she received the notices on 3 July 2013, showing them to her husband whom she told (for reasons which are not material) that she would not sign the documents in accordance with the request of the plaintiff. Mrs Wallis pointed out that although she had signed the successive guarantees related to the company's financing arrangements with Allianz and later for the variation extending the facility, she stood down as a director of the company on 14 March 2011, telling her husband that she would no longer be providing any personal guarantees for the business in future. However, she took no steps to limit her liability under the guarantees which she had earlier executed, for example by seeking a release from Allianz.
11. Mr Zoran Ristevski, the relevant manager of the account for the plaintiff says that, about mid July 2013 he checked which clients had not signed and returned the novation documents and spoke about this to Mr Wallis. His recollection was that Mr Wallis told him that his wife who was no longer a director of the company would not be signing the notice and his response was, "OK, well we will have to have a look at that." He said that he did not recall Mr Wallis suggesting that Mrs Wallis would not continue her guarantee. The evidence of the defendants in relation to this communication was contained in hearsay form in Mrs Wallis' affidavit, Mr Wallis not himself deposing to the conversation with Mr Ristevski. However taking that evidence at its highest, and ignoring the hearsay problem, it by no means proves that there was any release by the plaintiff of Mrs Wallis' obligations under her guarantees. The defendants may have mistakenly believed that by her not signing the consent document, she was not bound by her guarantee, so far as any monies advanced by the plaintiff were concerned. Furthermore there was nothing in Mrs Wallis' defence raising a case of release. As I have already mentioned, the assignment and novation comprehended her obligations under the guarantee and, if those obligations were validly assigned by Allianz to the plaintiff, she remained bound by them although, as at the date of the assignment to the plaintiff rather than to Allianz. Conclusion
12. The defendants' defence, as it seems to me, is based upon a fundamental misunderstanding of the legal effect of the conditions in their contracts with Allianz. They submitted (and, I think, also believed) that their debts to Allianz had either been expunged by its transaction with the plaintiff or, at least, if the company continued to owe money, and they continued to be bound by their guarantees that it should repay the monies owed, to Allianz, Allianz was not seeking to enforce its rights against them but, rather, it was the plaintiff with whom they had no relevant contractual relationship. However, the relevant clauses permitted Allianz unilaterally to assign its interests to the plaintiff, whether or not the defendants consented and gave their prior consent to the substitution of the plaintiff as party to the facility agreement and the guarantees. The deed between Allianz and the plaintiff effectively assigned and novated the agreements with the customer and the guarantees of the defendants.
13. The plaintiff tendered without objection the customary certificate as provided in the Standard Terms as to the outstanding amount. Accordingly, there should be judgment for the plaintiff against the defendants plus costs. I will make formal orders after submissions following delivering of the reasons.

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