Mytian v Witham [2001] NSWSC 47 | Case summary

1 HIS HONOUR: The plaintiff sues the defendant as one of the guarantors of the liabilities of a company now called Witham Enterprises Pty Limited. That company borrowed $640,000 from the plaintiff in 1992. The principal debtor and the plaintiff entered into a mortgage which in due course was registered under the provisions of the Real Property Act. 2 The defendant and his son, who were then the directors of the principal debtor, executed the document as guarantors. By the mortgage the principal debtor promised to repay the principal sum on or before 21 July 1994 and to pay interest at the rate of 16 per cent per annum, reducible to 15 per cent per annum upon prompt payment. 3 Clause fifthly of the mortgage recited that the principal sum had been lent to the mortgagor at the request and direction of the guarantor, that is to say the defendant and his son "and upon and subject to the promise of the guarantor to guarantee the due repayments by the mortgagor hereunder and the due observance and performance by the mortgagor of the covenants herein". There then followed a series of agreements. Subclause (a) provided: "The guarantor will from time to time pay to the mortgagee all repayments due under this mortgage and any other moneys which shall become payable by the mortgagor whenever and so often as the mortgagor shall fail to pay the same or any part or part thereof".

It is then signed by the defendant's son as director of the principal debtor and by the defendant as secretary to the principal debtor. 8 At the expiry of the period mentioned in the Variation of Mortgage the principal debtor was unable to repay the principal sum or any part of it. No interest has been paid since November 1995. The principal debtor offered the mortgaged land to the plaintiff but the plaintiff was unwilling to accept that in discharge of its rights. The defendant's son is apparently now resident in the United States of America. All that I am concerned with today is the plaintiff's action against the defendant. 9 The defendant takes three grounds of defence. First, he relies upon the rule of law or equity which provides that where as between a creditor and a principal debtor there is an agreement made to vary the terms of the agreement creating the debt, as between the creditor and principal debtor, the making of that agreement operates to discharge the liability of a guarantor unless the guarantor consents to the variation of the principal contract. Here the defendant submits that he did not consent in the way discussed in the various authorities. 10 I do not think that is correct. It seems to me that Mr Witham, the defendant, did request the plaintiff to vary the contract between the plaintiff and the principal debtor. It is true that he did not say in as many words : "I do this in my capacity as guarantor "- or anything like that. He sent the fax that I mentioned earlier, not as if he was a director of the principal debtor and sending the fax only in that capacity. Rather, he sent it on the letterhead of his firm. In any event, he personally sent it and it was he on behalf of the principal debtor who conducted the balance of the relevant negotiations which led to the formation of the new contract, that is to say, the variation of the mortgage. 11 Further, it was he, as secretary of the principal debtor company, who executed, or was one of the persons executing, the variation of mortgage on behalf of the principal debtor. So far as the evidence goes, it was he who arranged for the principal debtor to execute the variation of the mortgage. I refer to the authorities discussed in O'Donovan and Phillips, The Modern Contract of Guarantee, 3rd Edition, page 354. 12 Additionally it seems to me that it is wholly artificial to say he did not consent. He was one of the two persons who were directors of the principal debtor company. He seems to have had a good deal, perhaps virtually all, of the management of the day-to-day affairs of that company so far as concerns this chain of transactions. 13 O'Donovan and Phillips discussed a New Zealand case, the report of which I do not have before me at the moment, called Winstone Limited v Bourne (1978) 1 NZLR 94. That seems to be apt. The plaintiff has also referred me to a decision in Wren v Emett Contractors Pty Limited (1969) 43 ALJR 213, particularly at 220. Menzies J was, of course, in dissent, but what his Honour said does not seem inconsistent with the balance of the judgment in that case, or with the decision in Winstone Limited v Bourne. 14 Nor does it seem to me to be at all inconsistent with general principle or, I venture to suggest, with common sense. As a matter of simple reality, the defendant did consent to the variation in the principal contract. 15 The second ground of defence taken is as a matter of construction of the mortgage granted in 1992, the liability of the guarantor was limited to moneys due under that mortgage and not under the variation. As I understand the argument, once that mortgage expired by its terms and was replaced by the variation of mortgage, then, as a matter of construction of the 1992 mortgage, the guarantor had no further liability. I am afraid I disagree. 16 If one puts oneself metaphorically speaking in the shoes of the parties at the time of the 1992 agreement, I venture to think none of them would have agreed with that proposition. In any event, I find that the mortgage should not be construed in that way. 17 The third ground of defence is quite different. It depends upon the proposition that there was an oral contract performed in February or March 1998 between the defendant and Mr Corcoran, the solicitor for the plaintiff, to the general effect that interest under the mortgage be capitalised and that the principal sum not be repayable until the land, the subject of the mortgage, had been rezoned. 18 If I understand the argument correctly, that involved a need for legislation, but it hardly matters. The defendant described two telephone conversations, one in November 1997 and the other in February/March 1998 in which he said such an agreement was made. Mr Corcoran said there was no such agreement. 19 The principal strength of the defendant's argument seems to be the proposition that, by reason of the long delay which occurred, the likelihood is that the defendant's version is correct, that is to say there is no other explanation for why the plaintiff waited from about March 1998 until these proceedings were commenced, or just before the date of commencement, when they were more actively or aggressively threatened. 20 The explanation given came from Mr Corcoran. There are, it seems, four directors of the plaintiff company, a Mr Cooper and his three daughters. Mr Cooper is about 85 years old and in some ill health with memory problems. 21 The defendant's point might perhaps have been stronger had the opportunity been taken to cross-examine Ms Munroe upon her affidavit. I do not say that in the least critically, for the cross-examination might have destroyed that part of the defendant's case. Whatever the merits, or demerits, of that line of thought, I have to decide the case on the evidence. The delay is certainly a factor in the defendant's favour. 22 There are, I think, three countervailing circumstances which seem to me to mean the evidence of Mr Corcoran is more likely to be reliable than that of the defendant. 23 It would, I think, be surprising if any creditor accepted the proposition that the defendant said he put forward in 1997, without further inquiry and without obtaining a great deal more information. I think it would be even more surprising if a solicitor were to do that. 24 Secondly, the absence of any record of the supposed contract seems to me to be a telling point in the plaintiff's favour, reinforced to a degree by what correspondence there is, tending, in my view, towards the view that there was no such oral agreement. 25 Thirdly, and perhaps as a minor point, the language used in November 1997, on the evidence of the defendant, seems to me to be more the language of an accountant than the language of a solicitor when it spoke of capitalisation of interest. 26 In any event, for the reasons given, I prefer the evidence of Mr Corcoran. Something was made of the fact that one of his files was missing. In all the circumstances it does not seem to me to be terribly important. Of Mr Corcoran's three files, the one which was missing does not seem to have had very much to do with the transaction in question. 27 I propose, therefore, to give judgment for the plaintiff. I give judgment for the plaintiff for $987,200. I order the defendant to pay the plaintiff's costs. The plaintiff seeks indemnity costs. I am not persuaded it is a proper case for them. The defendant said he defended the case upon legal advice. I see no reason to doubt that. I decline to make an order for costs on an indemnity basis. ********** I certify that this and the preceding pages are a true copy of the reasons for judgment herein of his Honour Mr Acting Justice Brownie

Mytian v Witham

At a glance

Court

Decision date

Before

Source

Judgment (13 paragraphs)

Parties

Cases Cited (1)