Nicom Interiors Pty Ltd v Circuit Finance Pty Ltd

IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION CORPORATIONS LIST

3588/04 - NICOM INTERIORS PTY LTD v CIRCUIT FINANCE PTY LTD JUDGMENT 1 HIS HONOUR: This is an application under s 459G of the Corporations Act 2001 to set aside a statutory demand. The defendant is a finance company which entered into a lease agreement with respect to the fixtures and fittings of a putative restaurant at King St Wharf, Sydney. The lease agreement, it would appear, ended up as a financial disaster for the defendant and it claims that $602,341.89 is its loss. The lease was the subject of a guarantee which is annexed to the lease document to which I will return. 2 On 2 June 2004 the plaintiff, Nicom Interiors Pty Ltd, received a statutory demand for the sum I have mentioned, the claim being made against it as a guarantor. 3 The grounds on which the defendant's claim is attacked are technical, but it does seem to me that they are valid and that I need to set aside the statutory demand. 4 Section 459H of the Corporations Act provides that if the Court is satisfied that there is a genuine dispute between the company and the claimant about the existence or the amount of the debt then the Court sets aside the statutory demand. Section 459J makes it clear that the Court is not to act merely because there is a defect if there is not substantial injustice caused. 5 The first argument raised by the plaintiff is that on the proper construction of the document it is not a guarantor. There seems little sense in setting out the document in full but in my view it is fairly arguable that the plaintiff is not a guarantor. The guarantee which is attached to the lease commences with the words: "THIS DEED made on the day last hereunder referred to BETWEEN the person or persons named and described in the schedule hereto (hereinafter called 'the Guarantor') - of the one part and CIRCUIT FINANCE PTY LTD ... of the other part." 6 There then follows words after the word "WITNESSETH" which suggest that the guarantee has been given jointly and severally and that the defendant has the powers given to a mortgagee by the Property Law Act 1958 (Victoria). Then follows in a rectangular box the words "THE SCHEDULE". In that rectangular box are four names followed by the address of the four persons named. Names and addresses might come within the words "persons named and described in the schedule" though normally one would expect to find a greater description than the mere address. That rectangular box is then closed off and then there are four other rectangular boxes which commence with the words: "IN WITNESS WHEREOF these presents have been executed on the 22nd day of July 2003 SIGNED SEALED AND DELIVERED by the said"

then there are the four names, the name of the witness, the signature of the four named persons and the witness in each of the four boxes. At the conclusion of the fourth box without any insertion of a box the words appear: "IF REQUIRED UNDER ITS CONSTITUTION THE COMMON SEAL OF THE GUARANTOR COMPANY WAS HEREUNTO AFFIXED IN THE PRESENCE OF ITS DULY AUTHORISED OFFICER(S) OR EXECUTED BY THE GUARANTOR COMPANY BY BEING SIGNED BY THE DULY AUTHORISED PERSON(S)'" 7 There then appears to be what might be called a slim rectangular box in which the words "Guarantor Company Name" appears printed and the name and ABN number of the plaintiff is then written. There are then four mini boxes each of which is subdivided with the signature of two persons who purport to be directors. 8 There are then following two sheets, the second of which repeats the guarantee and contains a schedule which says: "THIS GUARANTEE IS AN ATTACHMENT TO AND FORS PART OF LEASE AGREEMENT NO 6199 DATED 29/7/03"

There is then the addition of another guarantor, Roy Lombardo, who says he has executed the guarantee as a deed on 29 July 2003. 9 The lease contained as clause 19.2 in fine print at the end of the document the following: "The parties hereto agree that the law governing this lease shall be the law of the State of Victoria and the parties consent to the jurisdiction of the Courts of that State". 10 Mr Newlinds SC, who appears with Mr Finnane for the plaintiff, says that the proper construction of the guarantee or at least a strongly arguable view of the guarantee is that it only affects the four persons named in the box. This is an unusual argument in the sense that normally people wish to shift liability on to corporations rather than individuals, whereas this argument seems to be going the other way. However, in my view, looking at the document the construction is certainly strongly arguable. The traditional form of deeds is that one has the operative part, then the schedule, then the attestation clause and that prima facie appears to be the way this document is set out. The persons named and described in the schedule appear to me to be more likely than not to be those in the first of the boxes. Now I am not determining the point; this decision is not to be taken as any res judicata. It seems to me that it is sufficiently arguable that it should go to trial. 11 The second principal argument is that the addition of the extra guarantee on 29 July 2003 means there has been a material alteration in the joint guarantee after it was executed, if it was executed by the plaintiff. That argument would have no force if the proper law of the contract were New South Wales law. That is because the rule that material alteration of a deed vitiates it (known as the rule in Pigot's case (1611) 11 Co Rep 26b; 77 ER 1177) was abolished in this State by an amending Act which inserted a new s 184 into the Conveyancing Act 1919 which section came into operation on 1 November 2001. However, it would seem that that reform has never been adopted in Victoria and that the rule in Pigot's case still applies there. Moreover, it also appears from the authorities which Mr Newlinds SC cited to me that because of some 19th century decision of the Full Court of Victoria, Colonial Bank of Australasia v Moodie (1880) 6 VLR (L) 354 (followed in Birrell v Stafford [1988] VR 281) even a material alteration to a deed which is of benefit to the person now complaining vitiates it. The proper law of the lease is Victoria. The probabilities thus are the proper law of the guarantee is also Victoria: Broken Hill Company Pty Ltd v Xenakis [1982] 2 Ll LR 304, 306. 12 The third point is that even if the plaintiff did sign as a guarantor it didn't sign in such a way as to bind it as a deed. The evidence before me is that the plaintiff is a company which has one director who is also the secretary. The document is in fact signed by two people who purport to be directors. Mr Newlinds SC says that just demonstrates confusion. Section 127 of the Corporations Act 2001 provides that where a company has a sole director who is also the secretary that director may execute the document without using a common seal but subsection (3) provides: "A company may execute a document as a deed if the document is expressed to be executed as a deed and is then executed by in the present case the sole director". 13 Although the execution clauses were individual guarantors containing the words both "signed, sealed and delivered" the box for corporate guarantors does not. Moreover, the words which I have set out between the boxes indicate that either the common seal has got to be put on the document or it is executed by being signed; it is not expressed ever to be executed as a deed. Accordingly, there does not appear to be any compliance with s 127(3) of the Corporations Act 2001 which would mean that a tribunal of fact may hold that it is not a deed binding the company and as the company does not appear to have given any consideration it may be that there is a mere nudum pactum. 14 Mr Aitken, who appears for the defendant, in his usual robust way said that any sensible commercial person or court would read the documents sensibly and not in the way in which Mr Newlinds has put and which seem to be favoured by me during his argument. If he is right, of course, he will win in the District Court. 15 Order as paragraph 1 in the originating process. Order that the plaintiff will pay the defendant's costs. This order is not to affect the order for costs made by Master Macready on 23 July 2004. The orders for costs may be set off.

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