ING Bank (Australia) Ltd v Srbotech Pty Ltd

Judgment 1This is an application by the Second Defendant to file an Amended Defence and to file a Cross-Claim out of time. The application is opposed by the Plaintiff who says, in effect, that the proposed defences and claims in both documents are futile and do not demonstrate a defence to the Plaintiff's claim nor a claim that can be made against the Plaintiff which is the proposed Cross-Defendant. 2The proceedings commenced on 9 November 2012 seeking possession of two properties one of which, at St Marks Road, Randwick, is owned by the Second Defendant. Possession is sought on the basis of a default in a loan agreement entered into on 25 October 1998, varied on 14 December 2001 and 4 February 2004, and the non-payment of the debt due pursuant to a guarantee given by the Second Defendant and others in October 1998. 3The first Defence filed by the Second Defendant made some admissions about the loan agreement, made some admissions about receipt of demands but generally either did not admit or denied the allegations made. A number of the paragraphs indicated that a request for further and better particulars of the Statement of Claim would be requested. 4An identical defence was filed by the First Defendant who, at the time, was represented by the same firm of solicitors. 5On 15 March 2013 I struck out the First Defendant's Defence. My reasons for doing so are contained in a short judgment I delivered on that day. In general terms I held that at best there was the plea of the general issue and no proper defence was pleaded. 6The Amended Defence which the Second Defendant now seeks to file admits the loan facility and that he agreed to provide a guarantee to the extent of the original facility of $630,000 together with variations consented to by him as referred to in Annexure "A" to the Deed of Guarantee. He says, however, that he did not consent to either of the two variations to the facility and the guarantee alleged to have occurred on 14 December 2001 and 4 February 2004. The Amended Defence goes on to say that the effect of the variations of the Facility Agreement made without his consent was to discharge him from any liability that he would otherwise have under the Deed of Guarantee. 7The form of the Amended Defence sought to be filed was handed up at the hearing of the application. I will mark it as Exhibit "A" on the application. 8The cross-claim that he seeks leave to file complements the Defence. It seeks declarations that he is not indebted to the Plaintiff and seeks orders that the mortgage over his property be discharged. It asserts that the guarantee was discharged by the variation to the loan facility made on 14 December 2001, alternatively as a result of the variation in January 2004 (the variation is actually dated 4 February 2004). 9Paragraphs 12, 13, 14 and 15 need to be set out in full. They plead: 12 Further and or in the alternative, an inspection of the First Variation by the First Cross-Defendant put or ought to have put the First Cross-Defendant on notice that: a. The First Cross-Claimant's signature was not on the document when the document purported to require his signature; b. The First Cross-Claimant as a director and secretary of the Debtor was not consenting to the First Variation notwithstanding that: i. He was a director and secretary of the Debtor; ii. Had previously provided a guarantee on that basis to the First Cross-Defendant; iii. The First Cross-Defendant contemplated that he should so consent. c. The affairs of the Debtor were being conducted in a manner such that the First Cross-Claimant was not aware of its dealings with the First Cross-Defendant and in particular that the Debtor was increasing its exposure to the First Cross-Defendant under the Facility and, consequently, his liability under the Guarantee; d. The affairs of the Debtor were being conducted in such a manner that it called into question the authority of the directors, other than the First Cross- Claimant, to act on behalf of the Debtor; e. The affairs of the Debtor were being conducted by the directors of the Debtor, other than the First Cross-Claimant, in such a manner that the position of the First Cross-Claimant, as guarantor would be adversely affected; f. The First Cross-Defendant had not made the First Cross-Claimant aware of the First Variation. 13 By reason of the matters in paragraph 12 above the First Cross-Defendant acted unconscionably, in allowing the Debtor to draw funds in excess of the facility limit of $630,000, towards the First Cross-Claimant by reason of the First Cross-Defendant's knowledge of the matters in paragraph 12 above and in addition, its knowledge that the First Cross-Claimant was not aware of the First Variation, alternatively its wilful indifference to whether the First Cross-Claimant was so aware. 14 Further and or in the alternative, an inspection of the Second Variation by the Cross-Defendant put or ought to have put the First Cross-Defendant on notice that: a. The First Cross-Claimant's signature was not on the document but a forgery; b. The document had been altered so as to change the identity of the guarantors; c. The First Cross-Claimant as a director of the Debtor was not consenting to the Second Variation notwithstanding that: i. He was a director of the Debtor; ii. Had previously provided a guarantee on that basis to the First Cross-Defendant; iii. The First Cross-Defendant contemplated that he should so consent. d. The First Cross-Claimant had not agreed to the variation of the guarantors on the document; e. The affairs of the Debtor were being conducted in a manner such that the First Cross-Claimant was not aware of its dealings with the First Cross-Defendant and in particular that the Debtor was increasing its exposure to the First Cross-Defendant under the Facility and, consequently, his liability under the Guarantee; f. The affairs of the Debtor were being conducted in such a manner that it called into question the authority of the directors other than the First Cross-Claimant to act on behalf of the Debtor; g. The affairs of the Debtor were being conducted by the directors of the Debtor other than the First Cross-Claimant in such a manner that the position of the First Cross-Claimant, as guarantor would be adversely affected; h. The First Cross-Defendant had not made the First Cross-Claimant aware of the proposed variation of the guarantors or the increased amount under the Facility. 15. By reason of the matters in paragraph 14 above the First Cross-Defendant acted unconscionably, in allowing the Debtor to draw funds in excess of the facility limit of $630,000, alternatively $880,000, towards the First Cross-Claimant by reason of the First Cross-Defendant's knowledge of the matters in paragraph 14 above and, in addition, its knowledge that the First Cross-Claimant was not aware of the Second Variation, alternatively its wilful indifference to whether the First Cross-Claimant was so aware. 10The variations were effected in this way. On 11 December 2001 the Plaintiff wrote a letter addressed to the secretary of Srbotech Pty Ltd confirming that it had approved a variation increasing the credit limit from $630,000 to $880,000. It listed the guarantors of the existing security and the fees associated with the variation and informed the company that the Plaintiff had the right to withdraw its offer if it was not accepted within 14 days of the letter. Attached to the letter were pages for execution by the Directors of the company and for the separate execution of the guarantors. 11Similarly, the variation offer dated 22 January 2004 was in the same form. The offer was to increase the loan facility from $880,000 to $1.2 million. The guarantors were listed except that Zorka Srbinovski was replaced by Dragica Srbinovski. Attached to the letter were again annexures for the Directors' signatures and the signatures of the guarantors. 12The Second Defendant's evidence relevant to the signing of the Deed of Guarantee and the variations was as follows: 11 I accept I signed the Deed of Guarantee in favour of the plaintiff on 19 November 1998. At the time of doing so, I was aware that I was guaranteeing a loan for Srbotech Pty Limited up to a maximum of $630,000. 12 Annexed to this affidavit and marked "C" is a letter from the plaintiff dated 11 December 2001 purporting to have my signature on it as a guarantor [this is the First Variation]. That is not my signature. It appears to be the signature of my brother, Simon Srbinovski. 13 Annexed to this affidavit and marked "D" is a letter from the plaintiff dated 22 January 2004 (this is the Second Variation]. I recall at some time in 2004 that Simon presented me with a document from the plaintiff that he required me to sign as guarantor. I cannot recall whether it was the same form of document as annexure "D" but I am sure that it did not have the hand-written changes whereby Dragica Srbinovski (Simon's wife) was removed as a guarantor and Zorka Srbinovski (my mother) was substituted for her. 14 Although the signatures purporting to be mine on annexure "D" look like mine, I am not sure they are mine. As I said before, I was asked and did sign a document at some time in 2004 for the plaintiff at the request of Simon. For that reason, I cannot unequivocally say that they are not my signature. However, I am absolutely certain that the document I signed did not have my mother as a guarantor instead of Dragica nor did it have any hand-written amendments. 13An examination of the two variations shows the following. In respect of the variation of 14 December 2001 it seems that Simon Srbinovski (the First Defendant) and Dragica Srbinovski have each signed twice as directors. Simon Srbinovski, Dimko Srbinovski and Zorka Srbinovski have each signed as guarantors in the presence of Peter James Livers who is in fact a solicitor. 14There is also a signature above the name Chris Srbinovski which looks nothing like the signature of the Second Defendant as it appears on a variety of other documents including the original guarantee and the affidavit the Second Defendant swore in the present proceedings. To the left of this signature and the Second Defendant's name the variation says "Signed by Chris Srbinovski in the presence of:" and the name and apparent signature of Mr Livers appears. The signature above "Chris Srbinovski" appears to be identical to the signature of the First Defendant. It does not purport to be the Second Defendant's signature apart from the fact that it appears in the position that I have indicated above the Second Defendant's name and to the right of the words I have set out above. 15In relation to the variation of 4 February 2004 the name of Dragica Srbinovski has been crossed out in handwriting in a number of places and Zorka's name written in lieu. Alongside those alterations there are two sets of initials that appear to be Zorka's and Dragica's initials. 16The two directors who have signed for the company are said to be the First and Second Defendants. The Second Defendant's signature appears to be his signature. The apparent signatures of the First and Second Defendants have purportedly been witnessed by Peter Rusbourne, a solicitor in Kirrawee - I say "purportedly" because in his affidavit the Second Defendant says nothing about signing in the presence of Mr Rusbourne. The signature above the name of the Second Defendant appears to be the Second Defendant's signature. 17The alterations to the variation are consistent with what appears in paragraph 13 of the Second Defendant's affidavit in support of this Motion in the sense that he may have signed the document before those alterations were made, signed and initialled by the parties concerned. Further, the signatures of Zorka and Dimco Srbinovski have been witnessed by a person other than Peter Rusbourne suggesting it was signed by them at a different time. 18The guarantee relevantly provides: 1. GUARANTEE AND INDEMNITY 1.1 You unconditionally guarantee the punctual payment to the Lender of the Debt on the due date. The "Debt" is all money owing at any time by the Borrower to the Lender on any account whatever, including money due in relation to the loan documents specified in the Schedule. You also indemnify the Lender against all loss, damage, costs, and expenses incurred by the Lender as a result of any failure by anybody to pay the Debt on the due date. (A guarantee is an obligation to pay money owing by another person. An indemnity is an obligation to pay that money even if the other person is not obliged to pay for any reason). 1.2 If the Borrower does not pay the Debt to the Lender on the due date. You must pay the Debt to the Lender immediately on demand by the Lender. The Lender may enforce this guarantee, any security, or any other rights separately or together, and need not enforce any rights against the Borrower or anyone else before enforcing this guarantee against you. 2. THIS IS A CONTINUING GUARANTEE 2.1 This guarantee cannot be revoked by You. You remain bound by this guarantee until a written release is given by the Lender. The Lender may release, or come to a separate arrangement with, any one or more of You, without affecting the liability of the remaining guarantors. 2.2 Your obligations under this guarantee continue and remain unaffected despite anything that happens to the Borrower and despite the Lender allowing the Borrower any time to rectify any default. For example, Your obligations continue even if the Borrower dies or is made bankrupt, or if the Borrower is a partnership and the partnership ends or the members change, or if the Borrower is a company and it is dissolved or wound up. 2.3 This guarantee continues despite any change in the amount of money owed by the Borrower to the Lender, or any change in the interest rate on that money. This guarantee continues even if the terms and conditions relating to the money due by the Borrower to the Lender are varied or anything else that happens in relation to the Debt. The obligations continue even though the Debt is repaid and then readvanced. 2.4 Your obligations continue even if for any reason the Borrower is not required to meet its obligation to pay the Debt (including where the Loan Documents become unenforceable), so that despite anything that may happen, You will ensure the Lender is paid the Debt. 2.5 The Lender does not lose the power to exercise any of its rights under this guarantee because of delay, any written or verbal statement, anything the Lender does, or anything else, other than an express written statement by the Lender that the Lender waives that right. (emphasis added) 19The Plaintiff says that the Amended Defence and the cross-claim are doomed to fail for two principal reasons. First, the terms of the guarantee bind the Second Defendant to whatever debt is owing by the borrower and notwithstanding any variations or arrangements to the original facility agreement. The Plaintiff points particularly to clauses 1.1 and 2.3 in that regard. 20Secondly, the Plaintiff says that the Second Variation clearly bears the signature of the Second Defendant. He thereby agreed to that variation and the result is that whatever irregularities there were with regard to the first variation are cured by his consent to the second. 21The Plaintiff points to the fact that the Second Defendant agrees that in 2004 he signed a document that his brother Simon presented to him as guarantor. The Plaintiff submits that although the Second Defendant says that he does not know if it was the Second Variation that he signed he does not suggest that he signed any other document relating to the loan. The likelihood is, therefore, that it was the Second Variation. Certainly the Second Defendant does not deny that it is his signature. 22In relation to the terms of the guarantee the Second Defendant points to what appears in cl 1.1 which specifically includes as the Debt money due "in relation to the loan documents specified in the Schedule". The Schedule identifies the loan documents (inter alia) as "Loan agreement between the Borrower and the Lender made on or about the date of this guarantee and any variations consented to by you." (emphasis added) The Second Defendant submits that cl 1.1 must be read together with the Schedule, particularly because it is expressly referred to in the part of the guarantee defining what the debt is. 23The Second Defendant says in answer to the Plaintiff's argument concerning his signature on the Second Variation that there is an arguable case which needs to go to trial on the issue of whether the Second Defendant signed the Second Variation or agreed to it in the form in which he did sign it. In particular, the Second Defendant says that if the guarantors were changed after he signed it he will be discharged. 24The question of the proper construction of the guarantee is a question of law. Although I accept that the test for futility of amendment is the test in General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 (see Alamdo Holdings Pty Ltd v Australian Window Furnishings (NSW) Pty Ltd [2006] NSWSC 1073 at [11]) I do not consider it is appropriate to determine that question of law on this application: cf. General Steel at 130. This is chiefly because, even if the construction was decided entirely in the Plaintiff's favour, it may not necessarily provide an answer to the claim of unconscionability that the Second Defendant raises. The Second Defendant says that, even if the terms of the guarantee were wide enough to permit variations without obtaining the consent of the guarantor, there is at least an arguable case that the Plaintiff may have behaved unconscionably in dealing with one of the directors to increase the Second Defendant's potential liability very considerably without any reference to him. This, it was emphasised, is particularly the case when there is an arguable case that the Plaintiff was put on notice at the time of the First Variation (by the suspect signature) that the Second Defendant may not have been aware of what was going on in relation to the loan facility and the guarantee. 25Similarly, even if it were held that the Second Defendant signed the Second Variation a change in the guarantors after he signed is arguably unconscionable. 26The Plaintiff quite properly takes no point about any delay in the matter in putting forward the Amended Defence or bringing the Cross-Claim. 27In my opinion, it cannot be said that the proposed amendments, in substance, are futile or doomed to fail. However, I consider that paragraphs 12 and 14 of the proposed cross-claim need further consideration. Paragraph 14 pleads that the Second Defendant signature on the second variation is a forgery. The evidence filed by the Second Defendant does not support that allegation. Forgery is a serious allegation to make and may only be made when there is a proper basis for doing so: Ghazal v GIO of NSW (1992) 29 NSWLR 336 at 348-349. The Second Defendant is entitled to have doubts about whether the signature is his, and he has expressed those doubts and the reasons for them in his affidavit. He is not entitled to assert on the basis of what appears in his affidavit that the signature is a forgery. 28Somewhat ironically the pleading in respect of the First Variation does not assert that his signature is a forgery. The reason proffered for that is that the signature does not purport to be his signature in the sense that it appears simply to be the signature of his brother the First Defendant. Whilst that may be so, the fact is that the signature appears above the Second Defendant's name and the document says that it is signed at that place by the Second Defendant in the presence of the solicitor. The Second Defendant positively asserts that it is not his signature. 29An amendment to paragraph 14(a) may necessitate amendments to the remainder of that paragraph because if all that the Second Defendant is able to assert about the signature on the Second Variation is that he does not know whether or not it is his, there is nothing (as there is in relation to the First Variation and paragraph 12 of the Cross-Claim) to justify the pleading concerning the Plaintiff's being on notice of the matters set out. 30No submissions were made with respect to costs. I will hear the parties on costs but my preliminary views are that in the first instance the Second Defendant should pay the costs thrown away by reason of the amendments but that the Plaintiff should pay the Second Defendant's costs of the Motion. 31I make the following order: (1) Grant leave to the Second Defendant to file an Amended Defence in the form of exhibit A and a cross-claim in the form of annexure B to the affidavit of Damian Grant Phair sworn 13 March 2013 with the amendments to paragraphs 12 and 14 that I have identified in this judgment.