Stringer v Abbotsleigh Properties Pty Limited

Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 at [71] - [74] Gardiner v Agricultural and Rural Finance Pty Limited [2007] NSWCA 235 at [11] - [13] Integrated Computer Services Pty Limited v Digital Equipment Corp (Australia) Pty Limited (1988) 5 VPR [97326] CASES CITED: Kooee Communications Pty Limited v Primus Telecommunications Pty Limited [2008] NSWCA 5 Ormwave Pty Limited v Smith [2007] NSWCA 210 at [68] Pacific Carriers Limited v BNP Paribas [2004] HCA 35 at [22] Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114 at [69] Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 at [40], [42] - [47]

Norman Keith Stringer (Plaintiff) PARTIES: Stringer v Abbotsleigh Properties Pty Limited (First Defendant) Joseph Prestia (Second Defendant) Noble Capital Pty Limited (Third Defendant)

COUNSEL: Mr L Gor (Plaintiff) Mr J Dupree (Defendants)

SOLICITORS: Bransgroves (Plaintiff) Russo & Partners (Defendants)

Pursuant to a written Loan Agreement (Exhibit A) made on 2 May 2005 Mr Stringer advanced $200,000 to Abbotsleigh Properties Pty Limited by way of a loan. The loan was not repaid by the due date and remained unpaid, so Mr Stringer commenced these proceedings for recovery of the principal loan and interest thereon. Summary judgment was given in his favour against Abbotsleigh Properties by Judge Finnane on 2 May 2007. That company has no assets and has not met the judgment or any part of it. Mr Stringer therefore, has failed to recover any of the loan or the interest thereon, which is considerable.

The dispute before me for determination arises out of allegations by Mr Stringer that the second and third defendants (Joseph Prestia and Noble Capital Pty Limited), who were parties and signatories to the Loan Agreement of 2 May 2005, are liable to him in respect of the loan. His claim is put on alternative bases (see the Amended Statement of Claim). The primary allegation is that Mr Prestia and Noble Capital agreed to personally guarantee the loan and any unpaid interest thereon. Alternatively, it was alleged that Mr Prestia and Noble Capital agreed to provide signed written guarantees in respect of the loan and any unpaid interest thereon, but have failed to do so. By way of further alternative it was alleged that Mr Prestia and Noble Capital agreed to cause an amount of $160,000 to be paid to Mr Stringer by the Bank of Western Australia, but failed to do so.

Mr Prestia and Noble Capital deny any liability to Mr Stringer under the Loan Agreement. They contend that upon a proper construction of the Loan Agreement, none of the obligations alleged arise.

The primary issues for determination are, therefore, whether Prestia and/or Noble Capital agreed either to guarantee the loan or alternatively to provide written guarantees. If the answer to either of these questions is yes, then there should be summary judgment for the plaintiff against them. Only if the answer to both questions is no will it become necessary to consider the alternative claim for $160,000.

The High Court has strongly reaffirmed the principle of objectivity by which the rights and liabilities of the parties to a contract are determined: Pacific Carriers Limited v BNP Paribas [2004] HCA 35 at [22]. This principle was reaffirmed in Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 at [40] in the following terms: "It is not the subjective beliefs or understandings of the parties about their rights and liabilities that govern their contractual relations. What matters is what each party, by words and conduct, would have led a reasonable person in the position of the other party, to believe. References to the common intention of the parties to a contract are to be understood as referring to what a reasonable person would understand by the language in which the parties have expressed their agreement. The meaning of the terms of a contractual document is to be determined by what a reasonable person would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties and the purpose and object of the transaction".

The Chief Justice of New South Wales, Spigelman CJ, recently discussed the High Court's approach and the circumstances in which it is appropriate to have regard to the extrinsic facts and matters surrounding the contract document, to assist in the ascertainment of the common intention of the parties as to their contractual rights and liabilities. In Gardiner v Agricultural and Rural Finance Pty Limited [2007] NSWCA 235, he said, at [11] - [13]: "In a number of joint judgments the High Court has adopted an approach to statutory interpretation which requires attention to the broader context of the words in issue in the first instance. Not only after some kind of "ambiguity" has been identified. (See e.g. CIC Insurance Limited v Bankstown Football Club Limited (1997) 187 CLR 384 at 408; Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 335 at 69 and Network Ten Limited v TCN Channel Nine Pty Limited (2004) 218 CLR 273 at 280-281). There is nothing new about this approach. (See e.g. R v Wilson; Ex parte Kisch (1934) 52 CLR 234 at 244). However, its application in recent cases was based on the judgment of Mason J in K & S Lake City Freighters Pty Limited v Gordon & Gotch Limited , (1985) 157 CLR 309 at 315.

It has been suggested that Mason J adopted a different approach to the task of contractual interpretation by requiring the identification of ambiguity in the first instance. (See Codelfa Constructions Pty Limited v State Rail Authority of New South Wales (1982) 149 CLR 337 at 348). I have, however, expressed the view that his Honour did not intend to confine the approach to contractual interpretation in that way, but that his reference in Codelfa at 348 to the proposition that language may not only be "ambiguous", but also "susceptible of more than one meaning", invoked a concept of "ambiguity", extending to any situation in which scope and applicability of the formulation was, for whatever reason, doubtful. (See South Sydney Council v Royal Botanic Gardens [1999] NSWCA 478 at [35].)

This approach is consistent with the subsequent authority in the High Court, particularly the passages to which I have referred in Pacific Carriers [Pacific Carriers Limited v BNP Paribas (2004) 218 CLR 451 at 461 - 462] and in Alphapharm . In this respect I agree with the reasoning in the Federal Court at first instance in Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2005) 223 ALR 560 at [78] - [79] and on appeal in Lion Nathan Australia Pty Limited v Coopers Brewery Limited (2006) 156 FCR 1 at [45] - [52], [98[, [101] and [254]. In this respect also, contractual interpretation has been brought into alignment with statutory interpretation. (See Bowtell v Goldsborough Mort & Co Limited ( 1905) 3 CLR 444 at 456 - 457; Minister for Immigration and Ethnic Affairs v Teoh (1995) 183 CLR 278 at 287 - 288; Repatriation Commission v Vietnam Veterans Association of New South Wales Branch Inc (2000) 48 NSWLR 548 at [116])." 7. A Court may find that a contract exists and enforce it, notwithstanding lack of clarity in the conduct and language of the parties: Integrated Computer Services Pty Limited v Digital Equipment Corp (Australia) Pty Limited (1988) 5 VPR [97326]. McHugh JA, as he then, was said: "It is often difficult to fit a commercial arrangement into the common lawyers' analysis of contractual arrangement. Commercial discussions are often too unrefined to fit easily into the slots of 'offer', 'acceptance', 'consideration' and 'intention to create a legal relationship' which are the benchmarks of the contract of classical theory. In classical theory, the typical contract is a bilateral one and consists of an exchange of promises by means of an offer and its acceptance, together with an intention to create a binding legal relationship... Moreover, in an ongoing relationship it is not always easy to point to the precise moment when the legal criteria of a contract have been fulfilled. Agreements concerning terms and conditions which might be too uncertain or too illusory to enforce at a particular time in the relationship may, by reason of the parties subsequent conduct, becomes efficiently specific to give rise to legal rights and duties.

In a dynamic commercial relationship, new terms will be added or will supersede older terms. It is necessary therefore to look at the whole relationship and not only at what was said and done when the relationship was first formed...A contract may be inferred from the acts and conduct of the parties...The question...is whether the conduct of the parties viewed in the light of the surrounding circumstances shows a tacet understanding or agreement".

Consistent with this approach the Court of Appeal also recently held that it is not necessary in determining whether a contract has been formed, to identify either a precise offer or a precise acceptance, nor the precise time at which an offer was made or accepted: Ormwave Pty Limited v Smith [2007] NSWCA 210 at [68]. The offer and acceptance analysis is a useful tool in most circumstances and indeed is normal and conventional but it does not work well in various circumstances: Brambles Holdings Limited v Bathurst City Council [2001] NSWCA 61 per Heydon JA as he then was, at [71] - [74]: "While the process by which many contracts are arrived at is reducible to an analysis turning on the making of an offer, the rejection of the offer by a counter-offer and so on until the last counter-offer is accepted, that analysis is neither sufficient to explain all cases, nor necessary to explain all cases".

However, the concept of commercial unreality should not be seen as unrestricted permission for judicial rewriting of contractual provisions: Kooee Communications Pty Limited v Primus Telecommunications Pty Limited [2008] NSWCA 5, per Basten JA. The Court has no power to remake or amend a contract for the purpose of avoiding a result which is considered inconvenient or unjust: Even if it suspects that the parties intended something different: Peppers Hotel Management Pty Limited v Hotel Capital Partners Limited [2004] NSWCA 114, per McColl JA at 69: "If the words used [in a written contract] are unambiguous the Court must give effect to them, notwithstanding that the result may appear capricious or unreasonable and notwithstanding that it may be guessed or suspected that the parties intended something different. The Court has no power to remake or amend a contract for the purpose of avoiding a result which is considered inconvenient or unjust".

Also consistent with the objective approach to the determination of the rights and liabilities of contracting parties is the significance that the law attaches to the signature (or execution) of a contractual document: Toll (FGCT) Pty Limited v Alphapharm Pty Limited [2004] HCA 52 at [42]. In that decision the Court reviewed the authorities relevant to this issue and reiterated the relevant principles at paragraphs [42] - [47]: · A written agreement is proved by signature and in the absence of fraud, misrepresentation or some other special circumstance, it is wholly immaterial that the party has not read the agreement or does not know its contents. A party cannot escape the consequences of signing a document by saying and proving that they did not understand it.

· If a party signs and thereby binds themselves to the terms of a contract, it is immaterial that the party did not trouble to discover the contents of the contract. That party is nevertheless committed to those terms by the act of signature or execution. It is that commitment which enables third parties to assume the legal efficacy of the instrument.

· To sign a document known and intended to affect legal relations is an act which ordinarily conveys representation to a reasonable reader of the document that the person who signs either has read or approved the contents or is willing to take the chance of being bound by those contents. The Loan Agreement of 2 May 2005

The starting point for the determination of the primary issues, namely whether Mr Prestia and/or Noble Capital agreed either to guarantee the loan or to provide written guarantees, is the text of the Loan Agreement itself and a consideration of whether the objective intention of the parties may be evinced or whether some doubt remains such as to require some consideration of the extrinsic circumstances surrounding the contract.

The Loan Agreement was executed by the parties to it as a deed on 2 May 2005. Those parties were:

Norman Keith Stringer described as the "Lender" Abbotsleigh Properties Pty Limited - described as the "Borrower" Joseph A Prestia and Noble Capital Pty Limited - described as "Guarantors".

The Recitals say: "The Lender at the request of the Borrowers and Guarantors has agreed to advance to the Borrowers the Loan Amount in Item 2 of the Schedule subject to the other items in the schedule and the terms contained in the Loan Contract".

The Schedule to the Recitals contains 10 items specifying the Borrowers, the Loan Amount, the Interest, the Repayment Date, the Calculation and Payment of Interest, the Default Interest Rate, the Guarantors, the Mortgage, Other Security and Credit Fees, Charges, Costs, et cetera.

Item 7 Guarantors provides: "Personal guarantees from Joseph A Prestia and Noble Capital Pty Limited".

Other clauses particularly relevant to the issue of guarantee include: 2.1, 2.2(e), 4.5, 4.6, 8.4(c) and 9.2(c). These clauses provide as follows: "2.1 The Borrower and the Guarantors acknowledges (sic) that the Lender has agreed to advance the Loan on the following representations by the Borrowers and Guarantors..."

"2.2(e) The Guarantor gives us a guarantee that satisfies us".

"4.5 We may apply any payment from you or the Guarantor to enforcement expenses, default interest, credit fees and charges, interest or principal as we choose".

"4.6 We may apply any payment from you or the Guarantor to the most recent debit to your account".

"8.4(c) If you or the Guarantor fails to do anything that this Loan Agreement, the guarantee, any mortgage or any insurance policy, requires you or the Guarantor to do we may..."

"9.2(c) Any enforcement expense includes an expense for doing any of the following under this Loan Agreement, any guarantee or any mortgage...

(c) performing any of your obligations or those of any Guarantor in accordance with clause 8.4".

There are other clauses in the agreement which refer to the guarantor.

Did the second and third defendants agree to guarantee the loan? 14. The first issue for determination is whether the Loan Agreement evinces a clear objective intention on the part of the parties to it that Mr Prestia and Noble Capital agreed to guarantee the loan.

Those defendants submitted that they did not agree to guarantee the loan. The written submissions provided on their behalf do not, in my view, begin to address this issue until paragraph 28. Their defence is contained in paragraphs 29 to 37 of those submissions. Paragraphs 29, 30, 36 and 37 contain the essence of their argument: "29. To determine this question, i.e. whether in fact a guarantee had been entered into, the Court will need to be persuaded that there is in the deed words that impose an obligation whereby the second and third defendants have guaranteed the debt of Abbotsleigh.

30. It is submitted that there is no such words that impose any obligation to guarantee found in the deed on a proper construction of it.

36. The deed does not, in its terms, amount to a guarantee such that it is submitted that the second and third defendants pursuant to the deed have not guaranteed the obligations of the first defendant under the Loan Agreement as pleaded in paragraph 5 of the Amended Statement of Claim.

37. It is submitted that on a proper construction there is no guarantee to be found within the terms of the deed".

In my view, however, the text of the Loan Agreement is clear. Reasonable persons in the position of these parties would understand from the language of that document that Mr Prestia and Noble Capital were agreeing to guarantee the loan to Abbotsleigh Properties.

This intention is in my view clearly indicated by the provisions of the Loan Agreement I have set out above. The only provision which caused me any pause that there was some other common intention is clause 2.2(c) but that clause is in contradistinction to other clearly expressed clauses, in particular clause 8.4.

My view is reinforced by the argument set out in the plaintiff's written submissions at 20 - 27.

I find therefore that Mr Prestia and Noble Capital agreed to personally guarantee the loan and are therefore liable as guarantors to repay the loan and any interest that has accrued and remains outstanding in respect of the loan.

In the event that it might be held that clause 2.2(c) is dominant in determining the common intention of the parties, I would nevertheless conclude that these defendants are in any event liable to Mr Stringer on the basis they agreed to provide separate guarantees at some future date.

In this respect I adopt the plaintiff's written submissions at paragraphs 31 - 39.

It is not necessary for me to deal with the plaintiff's alternative claim for $160,000.

The plaintiff's claim is quantified in a spreadsheet attached to the plaintiff's written submissions. The second and third defendants made no written submissions opposing or questioning the calculations. I incorporate that spreadsheet as a schedule to these reasons.

Principal $200,000.00 Interest to 5.6.2008 667,630.12 Total 867,630.12 Less Paid 108,000.00 Net Total $759,630.12

There will, therefore, be a verdict for the plaintiff against the second and third defendants for that amount together with any interest that has accrued from 5 June 2008 to date.

(There followed a discussion and submissions as to costs. The Plaintiff applied for costs on an indemnity basis, based on the contract.)

I will enter the actual judgment amount in chambers (in accordance with the verdict) which will include the amount of $759,630.12 plus any interest from 5 June 2008.

In my view the contract does not support an entitlement to indemnity costs. I order the second and third defendants to pay the plaintiff's costs of the proceedings, on the ordinary basis.

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