Plaintiffs v Defendants

2 The first plaintiff, Simonds Homes Melbourne Pty Ltd ("Simonds") is a well-known established residential development company in Victoria.

3 On 3 December 2007, Simonds and a related company, Madisson Homes Australia Pty Ltd ("Madisson") entered into an Exclusive Relationship Agreement with Longreach ("Agreement") for the purposes of developing Woondella Park ("the Land"). The recitals to the Agreement conveniently set out the background to and commercial purpose of the Agreement.

1. Longreach has agreed to acquire from Woondella Pty Ltd ACN 004 681 387 the land known as Woondella Park, SaleMaffra Road, Sale, 3850 comprising Lot: 1 Plan of Subdivision No. 316517A, and Ca 96 Parish of Sale situate at 1460-1486 Sale-Maffra Road, and Cemetery Road, Sale and being the land identified in the plans comprising Schedule 1 ("Land").
2. Longreach has agreed to subdivide the Land at its sole cost and expense so as to create parcels, lots and reserves generally in accordance with the Development Plan attached in Schedule 2 and Planning Permit No. P7/2007 issued by Wellington Shire Council attached in Schedule 3.

1. Simonds and Madisson are associated companies, Simonds principally conducting the business of detached house construction, marketing and sales (including house and land packages) and Madisson principally conducting the business of medium density housing development construction, marketing and sales including villa units and apartments.

(a) Longreach will enter into a contract to purchase the Land and subdivide the Land generally in accordance with the Development Plan and the Planning Permit;

(b) Simonds, together with Longreach's estate agent, will market house and land packages on proposed Lots 1-9, 11, 12, 13-86 shown on the Development Plan;

(c) Longreach will enter into Contracts of Sale of Land either with Simonds or with purchasers nominated by Simonds for each of such lots as part of a house and land package by which Longreach will sell the land and Simonds will construct under a separate building Contract a Simonds Home on the relevant lot;

(d) Longreach will engage Madisson to design and construct medium density apartments on Lot 13 and Villa Units on Lot 10;

(e) Longreach will engage Madisson to design and construct medium density apartments or Villa Unit on Lot 87;

(f) Longreach will engage Madisson to design and construct a retirement village on Lot 88 utilising Longreach's approved architects in accordance with Clause 8A.

1. The parties further intend by this Agreement that:

(a) Longreach will be paid for the Lots that are sold by the purchasers of those lots;

(b) Longreach will pay Madisson the design and construction price of Madisson for the construction of the Lot 10 villa units, the Lot 13 apartments, the Lot 87 apartments and the Lot 88 retirement village units and apartments and Madisson will endeavour to obtain a commercial building licence to allow them to complete the retirement village.

1. The parties propose to work together in the common goal of a successful subdivision of the land, the marketing and selling of house and land packages to purchasers, and the marketing and selling of villa units, apartments and retirement village units in accordance with approvals from statutory authorities, subject to Longreach (for itself or its nominated associated companies) retaining some built form property as an investment.
2. Simonds and Madisson will have the sole and exclusive right to undertake building construction (as contemplated by this Agreement) on the land for the term of this Agreement.

4 On 27 November 2007, shortly prior to the entry of the parties into the Agreement, Ms Irving and the third defendant, her husband Mr Benjamin ("guarantors") executed a guarantee in favour of Simonds ("Guarantee"). The Guarantee provides that in consideration of Simonds having agreed to enter the Agreement, and to pay the Fee as defined in the Agreement to Longreach, the guarantors:

guarantee to Simonds (if there is more than one guarantor, jointly and severally) the due and punctual performance and observance by Longreach of Longreach's obligations to Simonds under clause 15(d) and (e) of the said Agreement and the moneys relating to the Fee and interest to be paid by Longreach to Simonds under those provisions.

5 Payment of the "Fee" referred to in the Guarantee was provided for by clause 11 of the Agreement. Clause 11 of the Agreement provides as follows:

Simonds will pay the Fee to Longreach as follows:

(a) $150,000 upon execution of this Agreement and is to be regarded as a commitment fee;

(b) $150,000 on the day following commencement of subdivision construction works on the Land by the appointed contractor - this is accepted as being the time when the earth is turned to commence engineering works;

(c) $50,000 on the day following the settlement of the 15th lot as sold by Simonds; and

(d) $50,000 on the day following the settlement of the 35th lot as sold by Simonds.

6 On 18 December 2007, Longreach entered into a contract of sale of the Land to purchase the Land from Woondella Pty Ltd. This contract provided for Longreach to make a deposit of $10,000 (which the parties agree was never paid). In order to finance the performance of its obligations under the Agreement, in particular, the engineering and other works required to enable the Land to be subdivided and otherwise made ready for the construction of dwellings by Simonds and Madisson, Longreach borrowed the sum of $3.3 million from South Eastern Secured Investments ("SESI"), being 55 per cent of the valuation of the Land. The loan was secured by, among other things, a mortgage over the Land granted by Woondella Pty Ltd executed on or about 21 December 2007.

7 In or about the first week of May 2008, Longreach commenced subdivision work on the Land.

8 It is common ground that payments totalling $300,000 were made by Simonds to Longreach pursuant to clauses 11(a) and (b) of the Agreement ("Fee"). It is also common ground that while Longreach carried out some engineering works necessary for the purposes of the subdivision and subsequent development of the Land, these works were not completed and no houses were ever constructed on the Land by Simonds (or Madisson).

9 It appears that the reason why the development failed to proceed is that owing to the difficulties and constraints experienced by SESI as a consequence of the liquidity problems in the financial sector caused by the global financial crisis in 2008, a further advance that Longreach expected to obtain from SESI of approximately $1.4 million was not in fact advanced, and, as such, Longreach was unable to perform its obligations under the Agreement.

10 Between September 2008 and May 2010, Longreach was in default of the loan agreement between it and SESI. On or about 11 September 2009 SESI entered into possession of the Land, and, on 27 November 2009, exercised its power of sale as mortgagee. The settlement of the sale of the Land took place on or about 4 May 2010.

11 On or about 4 June 2010, Simonds and Madisson sent to Longreach a document titled Notice of Termination of the Agreement ("Termination Notice"). While this is a matter of dispute, Simonds also sent a Notice of Demand to Mr Benjamin and Ms Irving in their capacity as guarantors on or about 4 June 2010.

12 The Termination Notice stated, in summary, that:

(a) within the meaning of clause 15 of the Agreement there had been:

(i) a revocation of finance required to continue the Development contemplated by the Development Plan; and/or

(ii) the occurrence of an insolvency event in relation to Longreach;

(b) Longreach, through failing to comply with its obligations to SESI, which resulted in SESI exercising its power of sale of the Land, has manifested an inability or unwillingness to perform its obligations under the Agreement, and has therefore repudiated the Agreement, with such repudiation accepted by Simonds and Madisson; and

(c) as at the date of the Termination Notice, there were 84 unsold/undeveloped lots on the land, and as such Longreach was required to repay the entirety of the Fee paid to date, namely $300,000.

13 The Notice of Demand sent to the guarantors stated (omitting formal parts), as follows:

Simonds and Madisson pursuant to a Notice of Termination dated 24 May 2010 (sic) have terminated the Exclusive Relationship Agreement. We enclose a copy of the Notice of Termination to this letter.

You will note that as set out on page 2 of the Notice of Termination the sum of $300,000 is immediately due and payable by Longreach to Simonds pursuant to clause 15(f)(ii) of the Exclusive Relationship Agreement.

Under the terms of the Guarantee and Indemnity you have both jointly and severally guaranteed to Simonds the due and punctual performance by Longreach of its obligations to Simonds in relation to, among other things, the "Fee" which includes the sum of $300,000.

Accordingly, we are instructed to hereby demand that you make payment of $300,000 to Simonds by way of bank cheque within 14 days of the date of this letter.

The Termination Notice was addressed to Longreach at Level 6, 409 St Kilda Road, Melbourne, and/or West Tower, Level 2, 608 St Kilda Road, Melbourne ("St Kilda Road address"). The Notice of Demand was addressed to the guarantors at the St Kilda Road address (and sent by registered post to this address), by fax, and by email to johnbenjamin@longreachcapital.com.

14 This proceeding was issued on 23 June 2010. In their statement of claim, Simonds and Madisson pleaded that Longreach had repudiated the agreement by reason of

(a) Longreach failing to comply with its obligations to SESI,

(b) Longreach being unable to obtain the further finance of $1.4 million it expected to obtain once the works on the Land proceeded, and

(c) SESI entering into possession of the Land and exercising its power of sale.

15 Originally, Simonds and Madisson claimed damages by reason of Longreach's repudiation of the Agreement in the sum of $1,567,200. These claims were not pursued at trial, and as such Madisson is no longer an active plaintiff. Instead, at trial, Simonds pursued its claims under paragraphs 28 through to 35 of the statement of claim, whereby it sought the repayment of the Fee by Longreach and/or the guarantors on the basis of Simonds' alleged right to terminate the Agreement under clause 15 of the Agreement.

16 Paragraph 28 of the statement of claim states as follows:

... by virtue of:

(a) SESI's conduct referred to in paragraphs 15 and/or 20 above, a "termination event" has occurred within the meaning of clause 15(c)(v) of the agreement; and

(b) Longreach's conduct referred to in paragraphs 12 and/or 19 a termination event has occurred within the meaning of

(i) clause 15(c)(v)(C) of the agreement: and/or

(ii) clause 15(c)(v)(i)(D) of the agreement.

17 Paragraphs 30 and 31 of the statement of claim states that as at the date of termination of the Agreement:

(a) there were 84 unsold/undeveloped lots; and

(b) Simonds had paid in total the sum of $300,000 in or towards the fee.

By virtue of paragraphs 29 and 30 the sum of $300,000 became immediately due and payable by Longreach to Simonds pursuant to clauses 15(d) and 15(f) of the agreement.

18 Paragraphs 34 and 35 of the statement of claim states as follows:

A demand for payment of the sum of $300,000 by Ms Irving and/or Mr Benjamin, pursuant to the guarantee was made by Simonds to Ms Irving and Mr Benjamin on or about 4 June 2010.

Despite demand the payment of the sum of $300,000 is yet to be made by Ms Irving or Mr Benjamin.

19 Most of the documents and facts regarding the transaction between Simonds and Longreach (save for an issue as to whether the Notice of Demand addressed to the guarantors was received by the guarantors) were admitted or not contested by the defendants. However, the defendants deny that clause 15 of the Agreement imposes an obligation upon Longreach to repay the Fee. Further, the defendants submit that even if Longreach does have an obligation to repay the Fee, the terms of the Guarantee do not impose any obligations upon the guarantors to pay any money to Simonds in respect of the Fee.

20 Accordingly, the task at hand is to determine whether, on the proper construction of the Agreement and the Guarantee, whether:

(a) Longreach is obliged to refund the Fee to Simonds;

(b) if the answer to (a) is yes, whether the terms of the Guarantee require the guarantors to pay the sum of $300,000 to Simonds; and

(c) if there is any such obligation under the Guarantee, whether the guarantors are relieved of any obligation to make the payment by reason of the alleged nonservice of the Notice of Demand upon the guarantors.

Is there any liability of Longreach to refund the Fee under the Agreement?

21 As noted above, there is no dispute that Simonds paid the Fee to Longreach pursuant to clauses 11(a) and (b) of the Agreement. The dispute is whether, by reason of the terms of clause 15 of the Agreement, Simonds has proven, on the balance of probabilities, that a relevant termination event has occurred such that Simonds is entitled to demand a refund of the Fee.

22 Clause 15(c) to (f) of the Agreement relevantly provide as follows:

(c) The occurrence of any of the following events constitutes a "Termination Event" for the purposes of this Agreement:

(i) material default of any party which is not rectified within 60 days of delivery to the defaulting party of a default notice from a nondefaulting party specifying the default and requiring the defaulting party to rectify the default;

(ii) the inability of a party to meet an obligation of that party under the performance timetable in Schedule 9 (whether that inability constitutes or does not constitute a material default under clause 15(c)(i)) subject to clause 14;

(iii) a dispute in relation to an essential term is not resolved under clause 14;

(iv) Simonds and Longreach have not been able to agree upon a Lot Price List under clause 5 by the required date and review dates respectively;

(v) the revocation of any necessary approvals, licences or finance required to continue the Development contemplated by the Development Plan;

(vi) the occurrence of an insolvency event in relation to any party. The following constitute an insolvency event:

(A) an insolvency event specified under section 459C(2)(a) to (f) inclusive of the Corporations Act 2001 (Commonwealth) has occurred in respect of the party prior to completion and has not been remediated or withdrawn (where capable of remedy or withdrawal); or

(B) a receiver, receiver and manager, provisional liquidator, liquidator or other officer of the Court has been appointed in relation to all or any material assets of the party; or

(C) the party is insolvent within the meaning of Section 95A of the Corporations Act 2001 (Commonwealth); or

(D) the party has stopped paying its debts as and when they fall due;

(E) the party is subject to administration under Part 5.3A of the Corporations Act 2001 (Commonwealth).

(d) If a Termination Event occurs any party (other than the party in respect of whom an insolvency event has occurred) will be entitled to terminate this Agreement and this Agreement shall then be at an end save for any accrued rights obligations and liabilities. Where the Termination Event relates to a material default of a party the nondefaulting parties reserve and retain all their rights and remedies to claim damages from the defaulting party.

(e) In addition to the Termination Events specified in clause 15(c) in the event that the subdivision works for the Development contemplated by the Development Plan shall not have commenced within five months of the date of this Agreement then Simonds has the additional right to terminate this Agreement by notice to Longreach. In the event of such termination Longreach must repay and refund to Simonds all monies paid by Simonds to Longreach for the Fee and additionally must pay to Simonds interest on such monies calculated at the rate of 8% per annum from the date or dates such monies were paid until the date of repayment. Longreach hereby charges all the right title and interest of Longreach in the Land with the payment of all such monies and interest in favour of Simonds and acknowledges that Simonds is entitled to protect its rights under such charge by a caveat.

(f) In the event that the subdivision works for the Development contemplated by the Development Plan have commenced and this Agreement is terminated in consequence of any Termination Event then:

(i) Simonds and Madisson respectively will complete all buildings for which construction has commenced or all terms of contract have been agreed (including price) and Longreach must pay all monies payable under the terms of this Agreement or such contract for such building works. However if Madisson or Simonds have a separate right under the terms of a Simonds Building Contract to suspend works or terminate such contracts in consequence of an event of default of Longreach they may proceed to exercise such right despite this sub-clause.

(ii) Longreach must rebate the Fee to Simonds pro rata at the rate of $4,000.00 for each unsold/undeveloped Lot to a maximum of the funds paid by Simonds in or towards the Fee as at the date of termination.

23 Simonds relies upon the following termination events as giving rise to an entitlement to terminate the Agreement and seek a refund of the Fee:

(a) the failure of SESI to advance the further $1.4 million to Longreach as contemplated by the parties, and/or SESI's sale of the Land as mortgagee in possession, amounted to a "revocation of any necessary approvals, licences or finance required to continue the Development contemplated by the Development plan" (see clause 15(c)(v)); and

(b) that the failure of Longreach to meet its obligations under its loan to SESI constituted an insolvency event within the meaning of 15(c)(v)(i)(A), (C) and/or (D).

24 Simonds contends that the "accrued rights, obligations and liabilities" referred to in clause 15(d) of the Agreement includes the obligation under clause 15(f)(ii) of the Agreement, whereby Longreach must rebate the Fee to Simonds pro rata at the rate of $4,000 for each unsold/undeveloped lot to a maximum of the amount paid by Simonds towards the Fee as at the date of termination. Given that there were 84 unsold lots, this entitled Longreach to a full refund of the Fee. As the entitlement to a refund of the Fee was an accrued obligation or liability of Longreach under clause 15(d) of the Agreement, and the terms of the Guarantee expressly provide that the guarantors must guarantee the performance of Longreach's obligations to Simonds under clause 15(d) and (e) of the Agreement, the guarantors are jointly and severally liable to pay the sum of $300,000 to Simonds.

25 In response, the defendants contend that Simonds has not satisfied the onus upon it to prove, on the balance of probabilities, that it was entitled to terminate the Agreement on the basis that:

(a) the failure of SESI to advance a further $1.4 million and/or sell the land as mortgagee in possession amounted to a "revocation of finance" within the meaning of clause 15(c)(v) of the Agreement; or

(b) that there had been an "insolvency event" within the meaning of clause 15(c)(v)(i)(A), (C) or (D) of the Agreement.

26 In relation to (a) above, counsel on behalf of the defendants submitted that the failure by SESI to advance the anticipated $1.4 million advance amounted to just that, a failure to advance, not a "revocation of finance". Counsel submitted that in order for there to be a "revocation of finance" there must have been an agreement with SESI which had been revoked, or at the very least, an offer which had been withdrawn. An unfulfilled expectation does not amount to a revocation.

27 Further, counsel submitted that the conduct of SESI in taking possession of the land and selling it as mortgagee in possession does not amount to a revocation of finance. First, by the time that had occurred, the funds had already been advanced by SESI. Further, as SESI could have taken possession for a range of reasons (including by agreement with Longreach and/or Woondella Pty Ltd), that step alone does not amount to a revocation of finance within the meaning of clause 15(c)(v) of the Agreement.

28 In relation to paragraph (b) above, the defendants contend that Simonds has not proved that an insolvency event occurred.

29 The meaning of an "insolvency event" within clause 15(c)(iv)(A) is linked to the definition of an insolvency event specified under s459C(2)(a) to (f) of the Corporations Act 2001 (Cth). While this clause was referred to in the Notice of Termination, this ground was, quite properly, not pressed in the statement of claim.

30 The defendants also contend that Simonds has not established that Longreach was insolvent within the meaning of s 95A of the Corporations Act 2001 (see clause 15(c)(vi)(A)) or "has stopped paying its debts as and when they fall due" (see clause 15(c)(vi)(D)). The defendants submitted that the mere fact that a mortgagee's sale of the Land took place does not, of itself, prove that Longreach was, at the time of the issue of the Notice of Termination, insolvent. In any event, even if Longreach's failure to make payments to SESI under the relevant loan agreement could be characterised as an insolvency event within the meaning of clause 15(c)(v)(i) of the Agreement, there was no evidence that, as at the time of the issue of the Termination Notice, Longreach was unable to pay its debts as and when they fell due, and indeed, by that time, SESI had received funds from the settlement of the sale of the Land. There is no evidence that there was any shortfall, such that Longreach still owed money to SESI after the settlement of the sale of the Land, or any other evidence of any amounts owing by Longreach to other creditors. Counsel for the defendants submitted that Simonds should not be able to rely upon past defaults as evidence of insolvency as at the date of termination.

31 Counsel for the defendants relied upon a number of authorities in support of his contention that the mere failure to pay a particular debt, or evidence of some temporary cash flow or liquidity problem does not, of itself, prove that a company cannot pay its debts as and when they fall due. He noted that in the current case, the onus is upon Simonds to prove that an insolvency event has occurred, and that insolvency of a company is a question of fact:

to be ascertained from a consideration of the company's financial position taken as a whole. In considering the company's financial position as a whole, the Court must have regard to the commercial realities. Commercial realities will be relevant in consideration what resources are available to the company to meet its liabilities as they fall due, whether resources other than cash are realisable by sale or borrowing upon security and when such realisations are achievable;[1]

32 The contentions of counsel for the defendants regarding the applicable law were not disputed by counsel for Simonds.

33 In my view, Simonds was entitled to terminate the Agreement upon the basis that there had been a revocation of finance required to continue the Development contemplated by the Development Plan. I agree that the failure of SESI to make a further advance as anticipated by the parties was not a revocation of finance, for the reasons advanced by counsel for the defendants in his submissions. However, I consider that the exercise by SESI of its powers of sale as mortgagee amounts to a revocation of finance. After all, by exercising its power of sale, SESI was, in effect, withdrawing the financial accommodation it had provided Longreach to finance the performance of its obligations under the Agreement. Not only did SESI withdraw the financial accommodation it had provided, but that withdrawal prevented Longreach from performing its obligations under the Agreement in a most fundamental way: that is, by removing from Longreach's control the Land which was to be developed and sold under the Agreement.

34 In my view, equating SESI's sale of the Land with a withdrawal of an offer of a loan by SESI does not strain the language of this provision of the Agreement, particularly when this clause is viewed in its entirety, and in the context of the objectives of the Agreement as set out in the Recitals. Clearly, clause 15(c)(v) of the Agreement is directed at a situation where the acts of third parties (whether they be financiers, local councils, or other regulatory authorities) prevent the parties from pursuing the primary commercial purpose of the Agreement, being the development of the Land.

35 As I have found that Simonds was entitled to terminate the Agreement under clause 15(c)(v) of the Agreement, it is not strictly necessary for me to consider whether there has been an "insolvency event" within the meaning of clause 15(vi) of the Agreement. However, in my view, the language of clause 15(c)(vi) of the Agreement, that is, that the occurrence of an insolvency event on the basis that the party "has stopped paying its debts as and when they fall due" is broad enough to encompass past failures to pay debts. I agree with counsel for the defendants' submissions that the question of a company's solvency has to be viewed holistically, and that the overall commercial position of the company needs to be considered. In the current case, Longreach, which had entered into an agreement with Simonds and Madisson for the extensive development of a substantial parcel of land, no doubt with a view to making substantial profits, was unable to meet its obligations to SESI within months of commencing the works necessary to develop the Land, in circumstances where such defaults placed in jeopardy its ability to maintain control of the Land, which was fundamental to performing its obligations under the Agreement.

36 If it was said that Longreach was insolvent because it was, for example, late in making payments to one or more of its subcontractors, I would agree that it would be difficult for Simonds to establish insolvency on the part of Longreach. Indeed, I agree that it is necessary to view Longreach's financial position in its commercial context: the commercial context being that it had, up until one month prior to the issue of the Termination Notice, been in default under its obligations to SESI, no doubt by far its major creditor, for some twenty months. Further, I note that the loan from SESI to Longreach was secured, not only by a mortgage of the Land, but also by a charge over the assets and undertakings of Longreach, and personal guarantees by the guarantors. One can infer that Longreach did not have sufficient assets, and the guarantors were not in a position to provide sufficient funds to remedy Longreach's defaults under its loan agreement with SESI, to avoid the likelihood that SESI would almost inevitably take possession of the Land.

37 Further, the evidence given by Mr Benjamin during the course of the hearing bolsters my conclusion that in the period prior to June 2010 (and not only, as suggested by counsel for the defendants, some two years prior to the issue of the Termination Notice), Longreach was unable to pay its debts as and when they fell due. While giving evidence regarding where Longreach and its associated entities were located at the time the Termination Notice and Notice of Demand was issued, he stated in response to the question as to whether he had access to the premises at the St Kilda Road address:

"No sir ... (from) when we didn't pay rent and when we were forced to move out".[2]

38 As such, Simonds has established that there has been a relevant termination event, and as such, was entitled to terminate the Agreement and demand the repayment of the fee from Longreach.

Are the guarantors liable to indemnify Simonds in respect of the Fee?

39 Counsel for Simonds submitted that, on its proper construction, clause 1 of the Guarantee requires the guarantors to repay the Fee, in the event that Longreach fails to do so, on the basis that the obligation upon Longreach to repay the Fee under clause 15(f)(ii) of the Agreement is an "accrued obligation or liability" within the meaning of clause 15(d) of the Agreement, which in turn is expressly referred to in clause 1 of the Guarantee.

40 Counsel for the defendants submitted, in summary, as follows:

(a) there is a well settled principle that any doubt as to the status of a provision in a guarantee should be resolved in favour of the guarantor;[3]

(b) the Guarantee, by excluding any express reference to clause 15(f), does not, or was not intended to guarantee any obligations of Longreach under clause 15(f);

(c) the reference to clause 15(d) in the Guarantee is intended to refer to any claim for damages against Longreach, and no such claim is pursued in this proceeding;

(d) the effect of the Guarantee is that Longreach's obligations to refund the Fee are only subject to the Guarantee if no works commence within five months of the date stipulated by the Agreement for the commencement of the works; and

(e) in the event that it is said to be arguable that the obligations of Longreach under clause 15(f) are somehow "swept up" by the reference to "any accrued rights, obligations and liabilities" in clause 15(d), that would amount to an ambiguity in the terms of the Guarantee, which, according to established authority, could only be resolved in favour of the guarantors.

41 In the course of their oral submissions, counsel debated the reason why clause 1 of the Guarantee made no express reference to clause 15(f) of the Agreement. As noted above, counsel for the defendants submitted that there was no such reference because the parties did not intend the Fee to be recoverable from the guarantors under the Guarantee other than in the circumstances referred to in clause 15(e), that is, where the subdivision works had not commenced within five months of the date of the Agreement.

42 In response, counsel for Simonds submitted that the reason why clause 1 of the Guarantee did not refer to clause 15(f) of the Agreement was because it did not need to, by reason of the reference to accrued rights and liabilities in clause 15(d). It was necessary for the Guarantee to make an express reference to clause 15(e) of the Agreement because the right of termination conferred upon Simonds in clause 15(e) was an additional right to those referred to in clause 15(d), which conferred rights upon both parties to terminate the Agreement where relevant events occurred. It was not necessary to consider the established principle of construction relied upon by counsel for the defendants, because there is no ambiguity in the language of the Guarantee.

43 I agree with the construction of clause 1 of the Guarantee contended for by counsel for Simonds. If I were to adopt the construction of the Guarantee contended for by counsel for the defendants, it would lead to an almost absurd commercial result. It may well be that the parties to the Agreement itself might decide to agree that the Fee would be nonrefundable in certain circumstances, say, for example after the works had commenced. However, the commercial purpose of the Guarantee was not to determine in what circumstances the Fee would be recoverable from Longreach: rather, the purpose of the Guarantee is to impose upon the guarantors a liability to indemnify Simonds in respect of Longreach's obligations under the Agreement in the event that Longreach was unable to meet them. It would be most odd if the Guarantee was to be construed in such a way as to impose liability upon the guarantors to indemnify Simonds for some, but not all of the liabilities imposed upon Longreach by the Agreement upon termination (including, but not limited to, any claim for damages, which may be unlimited). To arbitrarily "carve out" one particular liability (such as the liability of Longreach under clause 15(f)) makes little commercial sense.

Was there effective service upon the guarantors?

44 As noted in paragraph 19 above, most of the facts alleged in the statement of claim, and other matters relevant to the background of the dispute were admitted by the defendants. Only one factual matter remained in dispute at the time of trial: whether the guarantors had been properly served with the Notice of Demand.

45 Simonds called its solicitor, Mr Ben Wyatt of Rigby Cooke, to give evidence regarding the service of the Notice of Demand upon the guarantors. Service of the Termination Notice was not in dispute. In examination in chief Mr Wyatt gave evidence, in summary, as follows:

(a) he was a solicitor of some 31 years standing, and had care and conduct of this proceeding on behalf of Simonds;

(b) he was familiar with the Notice of Demand addressed to the guarantors (which enclosed a copy of the Termination Notice);

(c) according to the text of the Notice of Demand, it was sent to the guarantors by fax, by email, and by registered post to the St Kilda Road address;

(d) he produced the original Notice of Demand, which had stapled to it an Australia Post lodgement receipt, which requested confirmation of delivery;[4] and

(e) to his knowledge, neither the Notice of Demand or the envelope in which it was enclosed had been returned to Rigby Cooke marked "address not known" or "return to sender".

46 Under cross examination, Mr Wyatt gave the following evidence:

(a) he was not aware that Longreach and its other associated entities had moved from the St Kilda Road address by early 2010; and

(b) when the solicitors previously acting for the defendants in this proceeding withdrew their representation from the defendants in 2010, the address given for service upon the defendants was the St Kilda Road address.

47 I gave leave for Simonds to recall Mr Wyatt after the parties had an opportunity to inspect the court file. In re-examination, Mr Wyatt gave evidence as follows:

(a) he identified the Notice of Ceasing to Act filed by the defendants' former solicitors on 29 October 2010, giving the St Kilda Road address as the address for service; and

(b) he identified an affidavit sworn in this proceeding by Mr Benjamin on 18 February 2011, whereby Mr Benjamin gave the St Kilda Road address as his current address.

48 The defendants called Mr John Benjamin, the third defendant, to give evidence regarding the issue of service of the Notice of Demand. Ms Irving, the second defendant, was not called as she was extremely ill. I was not asked to draw any adverse inferences from her failure to give evidence and, in the circumstances, would not do so. In examination-in-chief, Mr Benjamin gave the following evidence, in summary:

(a) In 2008, the offices of Longreach and other related entities ("group") were located at the St Kilda Road address;

(b) the premises occupied by the group at the St Kilda Road address was owned by the group's accountant;

(c) the group moved out of the St Kilda Road address in late 2009/early 2010;

(d) after the group moved out of the St Kilda Road address, the floor was vacant until some time in 2010; and

(e) he confirmed that in his affidavit sworn on 18 February 2011, he gave the St Kilda Road address as his address, which is still the office of the group's accountant.

49 Under cross examination, Mr Benjamin gave the following evidence:

(a) he understood the meaning of an oath;

(b) he identified the affidavit he swore on 18 February 2011, referring to the St Kilda Road address;

(c) in referring to the St Kilda Road address in the affidavit, he was not giving false evidence, because he was swearing the affidavit on behalf of Longreach, which had its registered office at the St Kilda Road address, and Longreach's accountant was based at this address;

(d) the St Kilda Road address is still the address of the registered office of Longreach;

(e) he has not had access to the St Kilda Road address since the group stopped paying rent and were forced to move out;

(f) he did not have any involvement in his former solicitor's creation of the Notice of Ceasing to Act dated 5 November 2010, which also referred to the St Kilda Road address;

(f) he has generally been the person giving instructions to his solicitors in this proceeding, his wife, Mary Irving, has provided instructions from time to time, but has not been able to do so for some time, as she is terminally ill;

(h) he did not come into possession of the Notice of Termination. He stated "We did not - NOT - receive a copy of the notice Mr Wyatt obviously has sent, but we didn't receive it";[5]

(i) when he referred to the St Kilda Road address in his affidavit of 18 February 2011, he was doing so for unspecified security reasons;

(j) he agreed that the Notice of Appearance filed on the defendants' behalf dated 15 July 2010 showed the St Kilda Road address;

(k) when asked whether the St Kilda Road address was "the address" as at 4 June 2010, he said:

"In terms of an address where we would normally receive mail, yes, sir, it is not an address where we live, it never has been, it's an office block.[6]

(l) When asked whether he received mail at the St Kilda Road address after May 2010, he replied:

"Irregularly, yes, sir, but we did not receive the notices that you're talking about, the registered mail, I'm not sure, I think now whether registered mail has to be signed for, then we didn't receive it, because we aren't there."[7]

(m) When shown a copy of the Termination Notice, attaching an Australia Post Delivery Confirmation-Advice Receipt showing that the letter was delivered to the St Kilda Road office and signed for by "Sophie", he stated that he did not receive the Termination Notice;

(n) the email address on the covering letter of the Termination Notice is not his email address, and the address on the letter, level 6, 409 St Kilda Road, was an address that the group vacated in 2008, and that he has never had a "Sophie" work for him, and he does not know who signed the delivery confirmation receipt.

50 In relation to the issue of service, counsel for the defendant submitted that while the defendants admitted they received the Termination Notice, their evidence, including the lack of a Delivery Confirmation - Advice Receipt for the Notice of Demand, suggests that the guarantors did not receive the Notice of Demand, which is consistent with the evidence regarding the changes in address of the defendants over the period. He made no submissions as to the legal effect of nonservice of the Notice of Demand.

51 Counsel for Simonds contended that Mr Benjamin could not be accepted as a witness of truth, submitting that his evidence was unsatisfactory, evasive, designed to defeat any reasonable questioning, and designed to mislead the Court, and that I should rely upon the documentary evidence which shows both the Termination Notice and the Notice of Demand were served upon the guarantors.

52 However, in any event, counsel submitted that it was not necessary for Simonds to prove that it had served the Notice of Demand upon the guarantors. He relied upon the terms of clause 2.2 of the Guarantee, which provides:

... that the liability of the guarantor is not conditional upon the making or serving of any notice or demand upon the Guarantor or the (sic) Longreach.

53 Further, he submitted, it is settled law that the question of whether a guarantor is entitled to notice of a debtor's default is dependent upon the terms of a particular agreement.

54 In relation to the question of whether valid service was effected upon the guarantors, I agree that there were inconsistencies between Mr Benjamin's oral evidence with Mr Wyatt's evidence, the contemporaneous documents, the court file, and admissions made by the defendants, (for example, Mr Benjamin claims not to have received the Termination Notice, but so much is admitted by the defendants in their response to Simonds' notice to admit filed on 14 August 2012).

55 However, there is, given the express terms of the Guarantee, no need to finally resolve this issue. Even if service was not effected upon the guarantors, no notice was required to be given. As such, the debate about whether the Notice of Demand was served upon the guarantors is somewhat arid. Accordingly, the guarantors are liable to Simonds for the obligation to repay the Fee.

56 Accordingly, I will give judgment for the first plaintiff against the defendants for the sum of $300,000. I will hear further from counsel on the question of interest and costs.

[1] _Southern Cross Interiors Pty Ltd v Deputy Commission_er of Taxation (2001) 53 NSWLR 213 at 224.

[3] See, for example Chan v Cresdon [1989] HCA 63; (1989) 168 CLR 242, 256, and Ankar v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549, 561.