Taurus Trade Finance Pty Ltd v Jakob Mortensen & Ors

Taurus Trade Finance Pty Ltd (Plaintiff) PARTIES : Jakob Mortensen (First Defendant) Tanya Therese Mortensen (Second Defendant) Tony Kahwajy (Third Defendant)

COUNSEL : R Marshall (Plaintiff) J Giles (Defendants)

SOLICITORS : Gillis Delaney Lawyers (Plaintiff) Frederick Laws (Defendants)

• 1 - IN THE SUPREME COURT OF NEW SOUTH WALES EQUITY DIVISION COMMERCIAL LIST

50206 of 2008 TAURUS TRADE FINANCE PTY LIMITED v JAKOB MORTENSEN & ORS JUDGMENT 1 The plaintiff, Taurus Trade Finance Pty Limited, is a financier. It has settled these proceedings as against the first and second defendants, Jakob Mortensen and Tanya Therese Mortensen, who were the principals of the business operated by Lightmakers Australia Pty Limited (now in liquidation) (LMA). The only remaining issue is between the plaintiff and the third defendant, Tony Kahwajy, in respect of a guarantee he provided to the plaintiff. 2 LMA carried on the business of the importation and distribution of exclusive lighting products, mainly from European manufacturers. It suffered constraints on its cash flow because payment for container loads of products from Europe had to be made before they were shipped by the supplier. An initial limited financial facility was available through LMA's bankers but it was inadequate to meet all of its requirements. It needed a facility that provided for both payments to suppliers and invoice factoring to recover such costs prior to payment by customers. 3 LMA was originally financed by the Bank of Western Australia Ltd (BankWest) and Bamford Partners Pty Limited (Bamford). The Bamford facility was only temporary pending provision of a full facility by BankWest. However, for various reasons LMA approached the plaintiff for finance and on 14 August 2007 the plaintiff made a formal offer in which it advised that it had approved a Trade Finance Facility with a limit of $550,000 and an Invoice Discounting Finance Facility with a limit of $600,000. Conditions of such approval included the provision of Deeds of Guarantee and Indemnity by LMA and its associated companies and personal joint and several guarantees by the first and second defendants. That offer was accepted by LMA on 21 August 2007. 4 The plaintiff entered into a Trade Finance Agreement and an Invoice Discounting Agreement (the Facilities) with LMA on 25 September 2007. It is common ground that although the Facilities were signed in September 2007 there were negotiations between the plaintiff and Bamford in respect of the withdrawal of Bamford's fixed and floating charge over LMA's assets and the paying out of the debt due to Bamford by LMA. Bamford required payment out in full of the debt before discharge of the fixed and floating charge. 5 The debt owed to Bamford was $596,278.38 (the Bamford debt). As a condition of the plaintiff paying out the Bamford debt, it required additional security from LMA and/or its associated companies. It was at this time that the third defendant became involved. The third defendant is Mrs Mortensen's brother. 6 It is common ground that the third defendant agreed to provide a guarantee to the plaintiff secured by a mortgage over a number of home units in Church Street, Ashfield (the Ashfield properties). The third defendant executed a Deed of Limited Guarantee and Indemnity on 23 November 2007 (the Guarantee) in which he was identified as "Guarantor"; LMA was identified as the "Client"; and the plaintiff was identified as "Taurus". The Guarantee included the following:

Collateral Security means each and every agreement, contract, deed, instrument and arrangement now or in the future from time to time:

(d) set out in the Schedule or incorporated into the Schedule; and

(a) all advances, credit, guarantees or other financial or credit accommodation now or in the future made or provided by or on behalf of TAURUS to or on behalf of or at the request of the Client or in respect to which the Client has any actual or contingent obligation or liability;

(b) all moneys which TAURUS or a Related Corporation of TAURUS pays or becomes liable to pay to or for or on account of the Client either alone or jointly with any other person by reason of TAURUS or a Related Corporation of TAURUS incurring liabilities on behalf of or at the request of the Client for any reason whatsoever;

(c) all stamp duty credit business duty and all other governmental duties and imposts commissions charges and expenses incurred by TAURUS in respect to transactions involving the Client or any Collateral Security;

(d) all money which is or may become payable by the Client to TAURUS or any Related Corporation of TAURUS under any Collateral Security or this Deed, whether alone or jointly with any other person including without limitation interest, commission, costs, charges and expenses payable by the Client or incurred by TAURUS or any Related Corporation of TAURUS or any Receiver or controller appointed by TAURUS or any Related Corporation of TAURUS or which may be incurred or become liable or contingently liable for or pay under any Collateral Security or this Deed or in the defence or in aid of its rights and powers under this Deed or any Collateral Security;

(e) all money which the Client may now or in the future actually or contingently be indebted or liable to TAURUS or to a Related Corporation of TAURUS on any account whatsoever, including, without limitation by guarantee, indemnity or otherwise; and

(f) liquidated or unliquidated damages payable by the Client to TAURUS caused or contributed to by any breach by the Client of any provision of any Collateral Security, this Deed, or by any act or omission of the Client; and

… 2. RECITALS (a) At the request of the Guarantor TAURUS has agreed to and is about to make available or continue financial accommodation to the Client and may in the future furnish further or other advances or accommodation to the Client in each case on the terms TAURUS thinks fit.

(b) The Guarantor has inspected the Collateral Securities and is fully aware of their terms and conditions and has agreed to enter into this Deed. …

4. GUARANTEE The Guarantor guarantees to TAURUS the Secured Money, and guarantees to TAURUS the due performance by the Client of the Client's obligations to TAURUS however arising.

4A. LIMITED GUARANTEE AND INDEMNITY Notwithstanding anything herein contained to the contrary (including (without limitation) the matters referred to in clauses 4 and 6 the Guarantor's obligations and liabilities arising under this Deed are expressly limited to the sum of $650,000.00 , together with (without limitation): (a) all consequential loss or damage; and (b) all associated cost and expense (including (without limitation) legal costs on a full indemnity basis).

28.5 Entire Agreement This Deed constitutes the entire agreement between the parties relating to its subject matter and supersedes all previous communications whether oral or written between the parties or their representatives. 7 In an internal memorandum of the plaintiff dated 26 November 2007 (the Memorandum) it was noted that LMA and the plaintiff had tried unsuccessfully to reach agreement with Bamford. It was also noted that the Bamford pay out figure was $596,278.38, which the plaintiff would pay as to $140,000 out of the Debtor Finance Facility (DF) and as to $456,278 out of the Trade Finance Facility (TF). That memorandum included the following:

Approval is sought to effective ( sic ) manipulate the clients total approved funding limit of $1.1 million between TF and DF on the proviso that the TF limit/exposure does not exceed the prudential limit of $750K. This will assist us in maximising his ability to import stock prior to Xmas and in the immediate period following.

Please note the complete Transaction Summary Form has been Uploaded onto the clients file. Total Cost of Goods 596,807.83 Add Bamford payout 596,278.38 Total Cover Required 1,193,086.21

Customer Sales 1,298,786.61 Debtor Finance @80% 1,039,029.29 DF contribution 140,000.00 Total funds avallable (sic) to Service 1,179,029.29

I note that the above Transaction Summary provides for a shortfall of $14K. The $14K will be held back from the DF facility and additional security held in the short term. We have strategies in place to ensure this payment. A cash flow has been provided by Lightmakers (uploaded) supporting this and showing that BankWest reduction of additional principal will be paid out by Christmas ($96,000). We have already received a Deed of Priority in respect of the BankWest for $1.1m.

As stated above we will collect a further 14k from the DF available funds generated from retentions and invoicing of other sales for which we do not have purchase orders at this point but is expected to be approx. $20K per week. Once this occurs we have strategies in place to recover our TF exposure from normal trading. In addition we have structured a fallback position via the refinance of family.

The client has (sic) is also in the process of injecting a minimum of $571K in the short term and a further $556K which will immediately be injected to reduce the TF facility and free it up to fund future stock purchases. In the short term Taurus has taken additional security to cover our small shortfall.

We have a secured guarantee and registered mortgage (Caveat has been registered this afternoon and) from family Tanya Mortensen's, Tony Kahwajy (Tanya's brother) who owns 6 investment units in Church Street, Ashfield. 8 The memorandum went on to describe the refinancing arrangement that would "immediately inject $571K" and concluded:

Therefore, considering the additional security on offer and the relatively low level of the shortfall ($14K) at settlement, recommend settlement to proceed on the above basis. 9 On 27 November 2007 the plaintiff paid to Bamford $596,278.38, representing the total Bamford debt. The plaintiff funded that payment as to $140,000 from the Debtor Finance Facility and $456,278.38 from the Trade Finance Facility. 10 The third defendant had decided to invest in LMA by the abovementioned process of refinancing the Ashfield properties. There were some unexpected complications in refinancing the properties, which delayed the settlement of that process. The plaintiff had lodged a Caveat over the Ashfield properties at the time he provided the Guarantee and the Mortgage to the plaintiff. The settlement of the third defendant's refinance occurred on 19 February 2008. At that time the plaintiff received a document entitled "Acknowledgment By Guarantor" (the Acknowledgment) from the third defendant, and in exchange for that and a bank cheque in the amount of $437,813.94, the plaintiff provided its Withdrawal of Caveat. The plaintiff credited the payment by the third defendant as partial repayment of the Bamford debt. The Acknowledgment included the following:

In consideration of TAURUS TRADE FINANCE PTY LTD ACN 120 567 866 ("TAURUS") continuing with its facility to Lightmakers Australia Pty Ltd ACN 003 527 884 (" Lightmakers ") pursuant to the Invoice Discounting Agreement and Trade Finance Agreement between Lightmakers and TAURUS, dated on or about 23 September 2007 (the " Facility ") and accepting the continuation of the following security and guarantee documentation in support of the Facility:

1. Deed of Limited Guarantee and Indemnity by Tony Kahwajy (" Kahwajy ") in favour of TAURUS on behalf of the obligations and liabilities of Lightmakers pursuant to the Facility, dated on or about 23 November 2007 (" Guarantee "); and 2. As security for the Guarantee, a Real Property Mortgage by Tony Kahwajy over the [Ashfield] properties … (collectively " the Properties ") in favour of TAURUS, dated 23 November 2007 (" Mortgage ");

Kahwajy agrees that in order to obtain refinance in respect of the Properties and allow new mortgages to be lodged for registration, he requires TAURUS to temporarily withdraw its Caveat No. AD591107.

Kahwajy agrees to pay to TAURUS at least the sum of $441,610.00 at settlement of the refinance in consideration for a withdrawal of the Caveat No. AD591107. Kahwajy acknowledges and agrees:

1. that if there are any available surplus funds at settlement over and above $441,610.00, he will pay these to TAURUS at settlement; 2. that TAURUS is entitled to re-lodge a Caveat in support of its interests pursuant to the Mortgage specified in clause 2, following settlement; and 3. notwithstanding any right or entitlement, or rule of law or equity to the contrary or the temporary withdrawal of Caveat by TAURUS the terms and conditions of the Guarantee and Mortgage will remain fully binding on and enforceable against Kahwajy for the benefit of TAURUS and shall not be adversely varied, modified or limited in any manner whatsoever. 11 It is agreed that the debt owing to the plaintiff by LMA is $430,411.93. There is no issue that a demand has been made on the third defendant under the Guarantee for payment of LMA's debt and that the third defendant has not paid that amount. 12 The issue between the parties is whether the third defendant's liability under the Guarantee was limited to the repayment of the funds advanced by the plaintiff to pay out the Bamford debt. The plaintiff claims that this is an "all moneys" guarantee and that no such limitation can reasonably be read from the terms of the Guarantee. The third defendant submitted that the intention of the parties was to limit the third defendant's liability under the Guarantee to the Bamford debt. 13 Counsel for the third defendant, Mr J Giles, accepted that the terms of the Guarantee are not ambiguous. He submitted that he needed the extrinsic evidence (the Memorandum) and the commercial context to establish such ambiguity. In this regard Mr Giles relied upon what Allsop P said in Masterton Homes Pty Ltd v Palm Assets Pty Ltd [2009] NSWCA 234 at [3] that "the identification of ambiguity is not a precondition for examining contextual and background material otherwise legitimate to examine in furtherance of the construction and interpretation of a written contract". It is not at all controversial that in construing a commercial document the Court may have regard to the commercial context in which the agreement was reached and the purpose of the commercial transaction and agreement the subject of the litigation. What is not permissible, as Mr Giles has attempted, is to utilise an extraneous document (the Memorandum) to attempt to create an ambiguity in a document, the language of which has plain meaning: Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337 per Mason J, as his Honour then was, at 352. Although Mr Giles deployed the well known statement in Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561 in relation to construing ambiguous provisions in favour of a surety, it seems to me he has not established the pre-requisite of an ambiguity. 14 The Memorandum was admitted into evidence over the sole ground of objection as to relevance. The Memorandum dealt with the manipulation of the Facilities to accommodate the payment of the Bamford debt, however reference was also made to the Guarantee and the immediate injection of $571,000 and a further $556,000 to reduce the Trade Finance Facility, to free it up to fund future stock purchases. There was a reference to the "short term" additional security covering the plaintiff's "small shortfall" of $14,000, however there was no suggestion that once an amount equivalent to the Bamford debt was paid back to the plaintiff the third defendant would be released from his guarantee. Nor was there any reference to the discharge of the Mortgage at such time. 15 The Memorandum does not establish that the third defendant agreed to a guarantee that was limited to the moneys advanced to pay out the Bamford debt. In my view the expression that the additional security was for a "short term" cannot be read as a reference to the third defendant's liability being limited to the Bamford debt. The definition of "Secured Money" in the Guarantee is totally unlimited, except that pursuant to clause 4A the third defendant's liability is expressly limited to the sum of $650,000. That figure is not the same as the amount of the Bamford debt, which was $596,278.38. Although Mr Giles suggested that the higher figure of $650,000 would include charges, fees and the like, there is nothing in the evidence to establish such an understanding by any party. Indeed the third defendant did not give any evidence in the proceedings. 16 In the Mortgage provided to the plaintiff over the Ashfield properties the third defendant signed an Acknowledgment of Legal Advice in which he set out the advice given to him by his solicitor which included: that if LMA failed to make any payment on time he would be liable to remedy the failure which could involve him paying the plaintiff "all amounts owed" by LMA to the plaintiff, including "principal, interest, default interest and" the plaintiff's costs of rectifying the default; and that his liability under the loan documents could be increased. There was no mention of the third defendant's liability being limited to the Bamford debt. 17 The third defendant had a further opportunity to make clear that his guarantee was limited to the Bamford debt. That was when he provided the Acknowledgment to the plaintiff at the time of the settlement of the refinancing of the Ashfield properties. The Acknowledgment referred to the Facilities and the third defendant expressly accepted "the continuation" of the Deed of Guarantee and the Mortgage. There is no reference in this document to the Bamford debt. 18 I am not satisfied that the third defendant has established that his liability under the Guarantee was limited to the Bamford debt. The plaintiff is entitled to entry of judgment against the third defendant for the amount claimed. The parties are to bring in Short Minutes of Order reflecting this finding together with an agreed costs order. If they are unable to agree on a costs order I will hear argument at the time the matter is listed for the filing of Short Minutes.

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