Plaintiff v Defendants

Supreme Court of Victoria|2008-10-07|Before: HARPER J

PRACTICE AND PROCEDURE - Appeal from a Master - Application for summary judgment - Personal guarantees given by directors of a company - Whether an issue to be tried - Terms of guarantee clear and unambiguous and arrived at following negotiation - Evidence adduced by the defendants inconsistent with claim that they were induced to enter the guarantee by representation - Appeal allowed.

1 Abigroup Contractors Pty Ltd is a construction contractor. In December 2004, it entered into a building contract with a company called 519 St Kilda Road Pty Ltd, ("519 P/L)", for "the design and construction of the development at 519 St Kilda Road, Melbourne". (That quotation is from the statement of claim paragraph 2 - an allegation which is admitted in the defence.)

2 The agreement was later twice varied. The second variation was effected by a document known as "Supplementary Deed No. 2". It is dated 3 December 2007.

3 By this time (according to an affidavit sworn in this proceeding on 18 August 2008 by Lance Vincent Hodgkinson, a director of 519 P/L) one of the financiers for the project, Capital Finance Australia Limited, had refused to advance funds because the facility provided by Capital had expired before practical completion.

4 The negotiations, or some of them, that preceded the entry into Supplementary Deed No. 2 took place, according to Mr Hodgkinson, on 22 November 2007. Abigroup Contractors then demanded payment by 519 P/L of the sum of $3,677,129.50. It also demanded that the directors of that company provide personal guarantees of that payment.

5 Mr Hodgkinson describes the negotiations in paragraphs 18 to 19 of his affidavit:

I met with Mr Walker [a director of Abigroup Contractors] and another director of Abigroup on 21 November 2007 at Mallesons. Mallesons acted for 519 P/L. Mallesons was represented by Mr Jonathan Oldham. I was informed by the other director (whose name I cannot recall) that unless 519 P/L entered into an agreement to pay that amount and, moreover, provide a security, the plaintiff would be seeking orders to wind up 519 P/L.

I offered a personal guarantee by each of Hausman and myself on terms which 519 P/L had extended terms of payment and was able to set off claims it had against Abigroup. The Abigroup director said he wanted security over assets which I said we could not provide. Mr Oldham and I then left the meeting for a period. When we returned, I was told that the personal guarantee was acceptable to Abigroup but only on its terms - there was a short period for payment. I had no option but to agree. The Abigroup director was quite emotional about this demand. I raised the question of the completion of the landscaping. One of the Abigroup representatives said that it would be completed. I said we would provide details of the works to be completed. Any winding up of 519 P/L would then have had grave consequences for other projects in which Mr Hausman and I were involved. We were given no choice other than to sign as otherwise the plaintiff would, I believe, carry out its threat to wind up 519 P/L.

6 The guarantee is exhibited to an affidavit sworn on 17 July 2008 by Mr Walker. By clause 2.2 of the guarantee, the guarantors:

Irrevocably and unconditionally guarantee to Abigroup the payment by 519 P/L of the guaranteed money. The guarantors will pay the guaranteed money within seven days of written demand by Abigroup against the guarantors following the failure by 519 to pay the guaranteed money in accordance with Supplementary Deed No. 2.

7 Clause 2.4 provides, in part, that the guarantors must, on demand and as a separate, additional and primary liability, indemnify Abigroup Contractors against all losses. Clause 2.6 provides that:

The liability of the guarantors is not subject to any document, or the performance of any condition precedent or subsequent.

8 Finally, for present purposes, clause 2.11, under the heading "No Set-Off", provides that:

The guarantors must not seek to reduce or avoid their liability under this deed by raising any defence, set off or counterclaim available to 519 P/L or the guarantors against Abigroup.

9 Mr Walker deposes to the service on 3 June 2008 of a notice of demand for payment of the sum then said to be due. The amount demanded ($3,114,008.97) reflected the fact that 519 P/L had made some repayments in reduction of the sum specified in Supplementary Deed No. 2.

10 The plaintiff now seeks summary judgment for the sum last mentioned, and seeks it against the two guarantors.

11 The application came before a master of this court who refused it on certain terms. This is an appeal against the master's decision.

12 In my opinion the appeal should succeed. I have come to this conclusion while acknowledging that the power to order summary judgment is one that should be exercised with great care, and never unless it is clear that there is no real question to be tried. But even if the burden is on the plaintiff to persuade me that there is in this case no such question, the plaintiff has in my opinion discharged that burden.

13 In a very able argument, put to me by Mr Walker of counsel for the defendants, it was submitted, amongst other things, that the defendants had been given a representation by the plaintiff to the effect that the plaintiff would rectify alleged defects in the landscaping works which, according to the defendants, were to be a feature of the project undertaken by Abigroup Contractors and which, by reason of the defects, resulted in the project being given much less favourable attention by prospective purchasers than the defendants expected. Hence, and I accept, the question of landscaping was an issue at the forefront of the minds of the defendants during the negotiations with Abigroup Contractors on 21 November 2007.

14 Nevertheless, I am satisfied that, on the facts before me, there is no remaining "fact sensitive issue" (to adopt a phrase used, I think appropriately, by Mr Walker) to be tried in this case.

15 The terms of the guarantee are clear and unambiguous. No suggestion of ambiguity has been put by Mr Walker. The guarantee was the subject of negotiation between the parties, with the defendants being represented by a firm of solicitors and the guarantee being drawn following the negotiations. This, therefore, is not a case of a party being presented with a written form that that party must accept or reject in toto. On the contrary, we have here a contract arrived at after a period of negotiation which purports to be, and as I find is, the repository of the contractual intentions of the parties. Those intentions are to be assessed by an objective examination of the contract itself. It is within the terms of the contract that the parties' intentions are to be objectively determined.

16 Read in that light, it seems to me to be beyond reasonable argument that the defendants agreed that they would not seek to reduce or avoid their liability under the guarantee by raising any defence, set off or counterclaim that otherwise might have been available to them.

17 It was submitted by Mr Walker that clause 2.11 must be read subject to the representation about the completion of the landscaping. He submits that I ought to accept, for the purposes of this exercise, that this representation was not only made by Abigroup Contractors, but also induced the defendants to enter into the guarantee.

18 There are, it seems to me, two difficulties with that submission. First, it runs contrary to the affidavit material upon which the defendants themselves rely. In the extracts from Mr Hodgkinson's affidavit, which I have quoted, Mr Hodgkinson states that the offer of the guarantee preceded the making of the representation by Abigroup about the completion of the landscape. In those circumstances, the decision to enter the guarantee could not have been induced by the subsequent Abigroup representation.

19 Secondly, even were that not the case, the fact is that some days after the representation was made, the parties agreed upon the terms of the guarantee. Those terms included clause 2.11.

20 Given that that clause is unambiguous, it demonstrates, in my opinion, that the effect of the representation, assuming that it was made and even assuming that it was made at a time when it might have induced the guarantors to enter into the guarantee, had been absorbed into the relevant clause, clause 2.11, so as to make it subject to that clause. The clear intention of the parties to the guarantee, as that intention is expressed in the guarantee itself, is that the representation, even if made, was not an element in the contractual relations between the parties.

21 Mr Walker referred me to a number of authorities to the effect that the assessment of conduct by reference to the norm created by s.52 of the Trade Practices Act 1974 is fact sensitive, is dependent on an examination of the whole course of relevant conduct, and is therefore properly a matter for trial. But these cases can, I think, be distinguished from that presently before me. The present case is one in which the contractual intentions of the parties were, in my opinion, made so clear as to remove any warrant for this matter being sent to trial. To adopt the phrase appropriately used by Mr Walker, the matter is no longer, if it ever was, "fact sensitive".

22 For these reasons, in my opinion the appeal should be allowed.

23 I will certify pursuant to the Appeal Costs Act.

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