Operation of suspension/preservation clauses in the present case
81Turning then to the construction and operation of the relevant clauses in the present case, the Bank relies on a combination of the various provisions to support the contention that there is no arguable defence to its claim for payment of the moneys outstanding under the facility agreement.
82Mr Sheahan notes that in Re Norman; Re Forest Enterprises Ltd (2011) 280 ALR 470; [2011] FCA 99, the Full Court of the Federal Court considering a clause similar to the suspension clauses in the present case approached the exercise on the basis that such clauses are to be interpreted consistently with business commonsense and in accordance with what a reasonable person would understand by the language expressed.
83As to the preservation clauses, there is no suggestion in the present case that any release was given to the borrower. Nevertheless, reliance is placed by the Bank on the breadth of the reference, in sub-clause (b), to a complete release as informing the opening words of the clause (i.e. to indicate that there is no basis to read down the opening words of clause 5.2 (or 4.2) as excluding an estoppel arising from the giving of additional time to the debtor or guarantor). In other words, as I understand it, it was suggested that the fact that the preservation clauses contemplated a liability persisting on the part of the Guarantors even if the borrower had been released from its liability under the facility agreement made it unlikely that reliance on the representation or conduct in the present case (which contemplated an extension of the facility) would fall outside the operation of the clauses.
84On one view, the representations alleged to have been made to the borrower (as to the extension and roll-over of the borrower's loan facilities and the provision of further funding), if proved, could be characterised as a "concession" for the purposes of sub-clause (b) insofar as they contemplated that the borrower would be given more time to pay the debt. On another view, they might be said to amount to a concession (similar to that alleged in Matich, namely, that the borrower would be able to procure funds with which to discharge that indebtedness.
85However, treating the conduct in question as amounting to a concession to the borrower, what clause 5.2 (or clause 4.2) does is to provide that the Bank's rights under the Guarantees (and the Guarantors' liabilities thereunder) are not affected by the fact of the making of such a concession. If the Guarantors can establish an entitlement (having regard to the representations by which it is alleged the Bank indicated it would or might extend or roll-over the facility or provide further funding for its discharge) to statutory or other remedies, the consequence of which would be that there was deemed to be no failure by the borrower to make the payment in question as at the date of the demand, then no right to call upon the Guarantee (and no liability to pay the guaranteed money) would have arisen as at that date. This would not be the effect of any "concession" by the Bank to the borrower, so as to call into play the operation of the preservation clauses. It would be a result of the remedies granted to the Guarantors. In those circumstances the preservation clauses could not be relied upon to confer a right or impose a liability that on that hypothesis had not otherwise arisen under the Guarantees.
86In other words, if this is not simply a case where a concession has been granted to the borrower of more time to pay an amount that was then due and payable, but (as contended by the Guarantors) is a case where, by reference to representations made to them and the borrower on which they have relied, relief is or may be granted that has the effect that, notwithstanding the provisions of clause 5.1 of the facility agreement, no amount was due and payable at the date the demand was made, then there would be no relevant right or liability to which the operation of the preservation clauses could attach.
87Reliance on the preservation clauses does not therefore assist the Bank to establish the lack of an arguable defence of the kind that the Guarantors seek to raise.
88As to the proper construction of the suspension clauses, the Guarantors contend (and I agree) that these clauses (and the no waiver clauses) operate only once a liability has arisen under the Guarantees (since the suspension clauses speak in terms of claims that would "reduce" the guarantor's liability under the guarantee and indemnity). The Guarantors argue that those clauses therefore do not operate to preclude a claim that the Bank is estopped, and liable to be enjoined, from asserting that a liability ever arose under the Guarantees.
89In both St George and Airstar Aviation, it was accepted that a suspension clause of this kind does not preclude the raising of a claim that impeaches the validity of the guarantee or the discharge of liability thereunder. That distinction was accepted by the primary judge (at [29]). However, the Guarantors contend in effect that there is a further situation in which the clauses will not operate (i.e. where the defence goes to whether any liability has arisen under the guarantee because there has been no relevant failure to pay the sum demanded from the borrower). It is contended that the true distinction is between affirmative defences, the effect of which is to deny completely the plaintiff's entitlement to the relief sought (in respect of which it is said that suspension clauses do not by their terms operate) and claims of set-off or counterclaim which merely offset or reduce that liability (to which it is said the operation of suspension clauses is directed). Insofar as the defence sought to be maintained by the Guarantors is one that challenges the Bank's contention that the debt was payable on 6 April 2009, when demand was made of the borrower for payment of the debt, it would fall within the former category.
90The suspension clauses, in their terms, operate while any of the guaranteed money remains "unpaid". While the definitions in clause 9.1 of "guaranteed money" and "payable" suggest otherwise, a reading of "unpaid" in clauses 5.5/4.5 as meaning money that is "due" and unpaid is consistent with the obligation of the Guarantor (under clause 2.1) being predicated on a failure of the borrower to pay money "on time and in accordance with any arrangement under which it is expressed to be owing", i.e. the payment of money when it is due and payable by the borrower.
91In other words, as I read them the suspension clauses (and, for that matter, the no waiver clauses to which I shortly refer) in their terms do not operate if, as the Guarantors contend, no debt was due and payable at the relevant time. There would be then no failure by the borrower to make the repayment "on time and in accordance with" the arrangements between it and the Bank. If so, they do not operate contractually to preclude the Guarantors raising a defence based on the debt not being payable at the relevant time by reference to the matters raised in their proposed paragraph [78A].
92Similarly, turning to the Bakota indemnity, clause 2.3 operates where the debtor does not pay an amount in accordance with "any arrangement" (a term that would cover an alleged oral agreement pursuant to which no sum was payable, particularly having regard to the breadth of the meaning for such a term in the context of s 45 of the Trade Practices Act). For the Bank it is noted that this is an indemnity in very wide terms and created a principal liability independent of that of the borrower (Sunbird Plaza Pty Ltd v Moloney (1988) 166 CLR 245 at 254). However, if the Guarantors' case is established, the indemnity has no operation because there has been no default under the arrangements reached between the Bank and the borrower (and, for the purposes of clause 2.3(b), no loss is incurred by the bank because Bakota is "not obliged to pay us an amount under clause 2" because on Bakota's case, there is no amount due under clause 2).
93That conclusion means that it is not necessary to consider the historical distinction between "set-off" and "counterclaim". The Guarantors had relied in that regard upon McDonnell & East Limited v McGregor (1936) 56 CLR 50 at 58 per Dixon J; Derham, The Law of Set-Off (4th edn, 2010) at 1.01,1.03-1.04 for the proposition that use of the terms "set-off" and "counterclaim" limits the operation of the suspension clauses to monetary cross-demands and that affirmative defences that impeach the Bank's claim, such as estoppel, and claims for relief under s 12GM of the ASIC Act, are not counterclaims or claims by way of cross-demand and are not precluded by such a clause (as recognised in Airstar Aviation). In response, Mr Sheahan had noted the recognition that parties may, by contract, exclude an equitable set-off as well as cross-claims (Derham, The Law of Set-Off, 3rd edn, at [5.79]).
94I accept that a reference to "set-off" may encompass claims for an equitable set-off. However, whether or not the reference to set-off or counterclaim in the suspension clauses extends beyond monetary cross-demands to claims based on estoppel/misleading and deceptive or unconscionable conduct, the suspension clauses are predicated on an amount being (due and) unpaid and if there is an arguable defence that (by reason of circumstances before or after the date on which, under the facility agreement, the sum was to be due) there was no sum due and payable at the date demand was made of the borrower, then there is no right/liability upon which the suspension clause can operate. For that reason, it does not seem to me that the authorities to which reference is made as to estoppel in the nature of set-off advance the Bank's position in the present case.
95Under the facility agreements the borrower was obliged to pay all money payable by it "in cleared funds without set-off or counter-claim and free of all deductions". Various cases have considered what is meant by "without set-off, counterclaim or deduction" or words to that effect. Particularly when considering a party's primary obligations (such as under lease agreements) to pay amounts due without deduction, this has been construed to exclude deduction arising by reference to an estoppel claim or the like.
96In The Fedora [1986] 2 Lloyd's Rep 441, Parker LJ rejected a submission that a "without set-off" clause of this kind did not apply to claims by way of set-off or counterclaim that were based on negligence, noting that (while exclusion clauses that purport to exclude liability altogether) without set-off clauses do not touch liability since "[t]he guarantors can still prosecute their claims to judgment. They are, if the clauses are effective, merely prevented from holding up payments admittedly due under the guarantees whilst disputed cross-claims are litigated" (my emphasis). Parker LJ accepted that the commercial purpose of the transaction was that, upon default by the borrower, the bank should be paid quickly.
97In Coca-Cola Financial, Neill LJ considered a clause that provided that all payments were to be made "free and clear of any right of set-off or counterclaim or any withholding or deduction whatsoever". Finsat had argued that, on its true construction, this clause did not apply to the counterclaims made by it (and that even if, as a matter of construction, the clause could apply to those counterclaims, it was unenforceable as being contrary to public policy). Its construction argument was put on the basis that the relevant provision dealt only with the mechanics for making a payment under the agreement and did not define the extent of the obligation to make payments. (It was noted that a different article in the agreement had provided that the obligations of Finsat were enforceable "subject to laws affecting creditors' rights generally and the availability of equitable remedies".) Neill LJ rejected Finsat's contention and said:
... The language ... is clear. Article 5.7 provides that payments are to be made free and clear of "any right of set-off or counterclaim." In my judgment these words define the extent of the obligation to pay. The point is underlined by the following words "[free and clear of] any withholding or deduction whatsoever."
98In GE Capital Australia v Davis, Bryson J similarly said:
The effect in substance of the provisions of the guarantee ... is that there is no limit on the right to resort to the courts if the guarantor first meets the obligation the protection of which is the primary purpose of the guarantee and indemnity and pays the amount of the debt. It is well established in this area of the law that the guarantor can have recourse to securities given by a principal debtor to indemnify himself, but that he cannot do so until he has paid the whole debt. The validity of modifications of what would under the general law be the rights of guarantors is well established. These contractual provisions extend the ways in which the guarantors' remedies are postponed, and extend the creditor's freedom from competition in enforcement of its rights. The condition which must be fulfilled is directly related to the purposes of the agreement.
99In Daewoo, White J considered an application for summary judgment based in part on the contention that the defendant was precluded from raising a set-off against a claim for payments due under a dealership agreement. The relevant clause required payments to be made "free of any set-off or counterclaim and without deduction or withholding".
100Her Honour referred to the decisions in Coca-Cola Financial and The Fedora, concluded that the clause in question prevented reliance by Porter Crane on any set-off which it might have "to delay Daewoo's claim for money owing under the Agreement" and gave summary judgment in Daewoo's favour.
101In Norman, to which I have earlier referred, Jacobson, Nicholas and Yates JJ considered the operation of a clause providing for payment "without any deductions whatsoever". Their Honours considered that it was not necessary to decide the question of the meaning and effect of the words "without any deductions whatsoever" because of the view reached as to the unavailability of equitable set-off in that case but nevertheless dealt briefly with the issue of construction of this phrase from [181] - [202], concluding that an equitable set-off would have been excluded by those words.
102Their Honours extracted the following four propositions from Connaught Restaurants Ltd v Indoor Leisure Ltd [1994] 1 WLR 501; [1994] 4 All ER 834 and Grant v NZMC Ltd [1989] 1 NZLR 8 (from [184] - [187]):
First, a tenant's right of equitable set off against rent may be excluded by the terms of the lease but clear words are needed to do so: see also Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] AC 689 at 717-18 and 723; [1973] 3 All ER 195 at 215-16 and 220.
Second, the word "deduction" is a flexible term, the meaning of which is heavily dependent upon its context.
Third, in the absence of contextual considerations to the contrary, the words "without deduction" are not sufficiently clear to exclude a tenant's equitable right of set off against rent.
Fourth, added words of exception or qualification are relevant to the construction of the phrase in question, but they are also subject to the general requirement of clarity.
103At [192], their Honours said:
Perhaps the clearest statement of the line of authority in favour of the proposition that the words "without deduction" exclude set off is to be found in the observation of Bryson J in Batiste v Lenin (2002) 10 BPR 19,441; [2002] NSWSC 233 (Batiste). His Honour there said that in his opinion the literal meaning of those words make it clear that there is no room for reliance on any right of recoupment and the purpose of the words is to prevent the tenant from relying on rights or claims to be entitled to set off, recoup or otherwise withhold payment of rent. He also said at [105] that:
[105] ... if the use of the words "without deduction" did not achieve this result I cannot see what they would achieve as the ordinary obligation of a debtor is to pay the whole debt.
noting that on the dismissal of an appeal from that decision (Batiste v Lenin (2002) 11 BPR 20,403; [2002] NSWCA 316), Sheller JA (with whom Giles JA and Santow JA agreed) had said at [49] that he was not persuaded that Bryson J's view of the meaning of "without deduction" was correct, although did not go on to decide the question.
104At [194], their Honours observed that the weight of appellate authority did not support the view that the phrase "without deduction" excluded equitable set-off but saw considerable force in the remarks of Bryson J. (In the case before their Honours, the words in question included "whatsoever" and, in accordance with the principles stated by Waite LJ in Connaught Restaurants, this was an added word of exception relevant to the construction of the phrase used in the leases.) At [199], their Honours said:
When considered in light of these principles, it is difficult to see how the words "without any deductions whatsoever" are consistent with an entitlement to maintain an equitable set off. A commonsense businesslike approach to the construction of what reasonable people would understand by this expression is that the parties intended that [the lessee] could not make any deduction of any kind from rent, including a deduction by way of equitable set off.
105At [209], their Honours observed that, although the claim of estoppel was not developed during the course of the argument in the appeal, it was difficult to see how any representational conduct by the lessee could found an estoppel binding on the receivers, whose primary duty was to their appointor, exercising powers under independently agreed financial arrangements (an argument that Mr Walker submits was premised on an assumption that estoppel would otherwise be available).
106Those cases proceeded in effect on the basis that there was an admitted or underlying liability such that the claim sought to be raised against it would operate (as a counterclaim or set-off) to reduce or extinguish the liability; not where the claim was one going to the existence per se of the liability (which is closer to the situation where the claim is one that would vitiate or discharge the guarantee itself).
107The force of the words "without set-off or counter-claim and free of all deductions" in the facility agreement in the present case is that the borrower might, on Bryson J's reasoning, not be able to set up an estoppel or equitable set-off against a liability to pay the outstanding debt that had arisen on 15 January 2009 or that was persisting at 6 April 2009. However, I am not persuaded that the obligation to make payment of all money payable without deduction would preclude the borrower from raising an estoppel defence to argue that the amount was not then due and payable at all. Nor am I persuaded that the suspension/preservation clauses preclude the guarantors, whilst moneys remain outstanding under the facility agreement, from so doing.
108As to the "no waiver" clauses, the Guarantors contend that even if these clauses, properly construed, operated to preclude an estoppel defence, they would be ineffective in equity to preclude an action to restrain the enforcement of the Bank's contractual rights (relying on Saleh v Romanous (2010) 79 NSWLR 453 at 459-460; [2010] NSWCA 274 [52]-[57]). Mr Sheahan contends to the contrary that the "no waiver" clauses can encompass waiver in the sense of estoppel (citing Commonwealth v Verwayen (1990) 170 CLR 394 at 407 and Kammins Ballrooms Co Ltd v Zenith Investments (Torquay) Ltd [1971] AC 850 at 883).
109The no waiver clauses provide, relevantly, that no right created under the Guarantees can be waived or varied except in writing. In Commonwealth v Verwayen, Mason CJ (dissenting in the result) noted that one category of waiver was where a person was prevented from asserting, in response to a claim against that person, a particular defence or objection which would otherwise have been available; such a waiver arising where "the person agrees not to raise the particular defence or so conducts himself as to be estopped from raising it". (His Honour noted that past authorities dealing with waiver of statutory rights had spoken at times in the language of election, at times in that of estoppel and at other times in terms of unconscionability.)
110In effect, the argument by the Bank is that, for it to be estopped from claiming sums owing under the Guarantee, it would be necessary for the conduct giving rise to such an estoppel to be in writing. Were it necessary to construe those clauses (and in light of the above conclusions it is not because, if the Guarantors' case is correct) I would have had difficulty construing the no waiver/variation clause as extending to the situation where an estoppel arises by operation of law or where relief of the kind sought by the Guarantors is available under legislation such as the ASIC Act.
111In Town & Country Sport Resorts (Holdings) Pty Ltd & ors v Partnership Partnership Pacific Ltd (1988) 20 FCR 540, the Full Court of the Federal Court (Davies, Gummow and Lee JJ) noted that the court might, in an appropriate case, make orders to vary the terms of agreements or declare them void as a consequence of the contravention of the provisions of the statute by the mortgagee. Hence, such remedies may have retrospective effect so as to mean that there was no liability at a particular date.
112In Bitannia Pty Ltd v Parkline Constructions Pty Ltd (2006) 67 NSWLR 9; [2006] NSWCA 238, Hodgson JA, at [8] noted that s 52 of the Trade Practices Act (Cth) disclosed a legislative intention that persons should have a remedy to protect them from (or to recover compensation for) damage from the misleading conduct of a corporation and it would not be in accordance with that intention to permit a corporation to obtain judgment on a cause of action one essential element of which had been created by the corporation's misleading conduct. (See also Basten JA at [88] and [96] and Tobias JA at [17]).
113Mr Sheahan accepts that the question as to whether any prior representations were superseded by the amendment letter of 23 December 2008 (and were thus no longer operative by 15 January 2009), is not a matter appropriate for determination on a summary judgment application. Similarly, the question as to whether representations made after that date (namely, the 2009 representations alleged from [82] of the draft Further Amended Commercial List Statement to Cross-Claim Summons) would be sufficient to support the contention that the debt was not due in April 2009 would not appropriately be dealt with on a summary judgment application.
114Accordingly, with respect to the primary judge, I am of the view that it cannot be said that there was no real or arguable defence to the Bank's claim under the Guarantees (or, in Bakota's case, on the indemnity). The suspension/preservation clauses do not preclude raising claims for the grant of relief for misleading and deceptive or unconscionable conduct that may operate retrospectively such that the foundation on which those clauses would operate would not have arisen or would have disappeared by the time demand was made under the Guarantees.