(As to fraud and other exceptions to entitlement to make demand, see eg, Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545; Boral paras 39-42. Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158).
Construction of the guarantee
38 The first paragraph is a preamble which recites that the Bank guarantees the payment by the Plaintiff of an amount up to a maximum of $461,500.00, which is described as being " … in connection with deposit guarantee for the purchase of the property at 9-13 Beresford Road, Strathfield NSW 2135 (Purchaser: City Smart Investments Pty Ltd A.C.N. 098 925 609, Marsha Foxman & Terence Gerard Lane-Mullins)".
39 The task is to determine whether or not, when one construes this guarantee as a whole, the result is that it was a condition of the agreement, or at least that it was arguable that it was a condition of the agreement, that at the time of demand there was a contract for the sale and purchase of the property between the Vendors and the nominated purchasers.
40 By the terms of the next sentence the Bank undertakes to pay the Vendors upon receipt of their "first written demand" the whole or any part of the maximum amount specified. In my opinion it is clear that by these terms the obligation to pay arises upon receipt of the Vendors' first written demand, and is unconditional. This conclusion is reinforced by the remaining words of the sentence the effect of which is that the payment is to be made without reference to the Plaintiff and notwithstanding any objection by him.
41 As pointed out by Austin, J in Boral (para 47):
"47 Where the instrument in question is a bank guarantee, under which the bank "unconditionally" undertakes "to pay on demand" the sum demanded up to the limit specified, the Court will adopt a construction of the instrument that reflects the unconditional nature of the payment obligation, and will not make the bank's payment obligation depend upon the claimant establishing an entitlement to be paid under its contract with the person who procured the bank guarantee. The observations of Gibbs and Stephen JJ in Wood Hall are applicable. The instrument is treated as "unconditionally convertible to cash", in the words of Stephen J".
42 In the circumstances of this case the obligation of the Bank is to perform what is required of it under the guarantee which is to pay simply upon demand. On the true construction of the instrument there is nothing which qualifies the payment obligation by, for example, a requirement for the provision of documents to the Bank, or by reference to an underlying contract or arrangement between the Vendors and the Plaintiff.
43 For the Plaintiff's submission to succeed in my view it would be necessary to interpret the preamble as a requirement for the provision by the Vendors to the Bank of evidence of the contract which is said to be described in it, or otherwise to demonstrate the existence of such contract at the time demand for payment is made.
44 In my opinion the submission must be rejected. The words of the preamble are incapable as a matter of construction of being understood as a qualification to the Bank's contractual obligation to pay upon demand. There is no indication at all in the instrument that the promise to pay was to be conditional upon the existence of the contract said to be described. Indeed, it is not evident from the preamble that it was the intention of the parties to link the amount guaranteed to the requirement for a deposit under any particular contract. Nevertheless, whatever the preamble might be interpreted to mean, I am satisfied that it does not operate to make the Bank's promise conditional, or to qualify the Vendors' right at any time to demand payment. To hold that the Bank should not pay on receiving a demand, but should be bound to enquire as to the existence of a contract of the kind described in the submission would be to depart from the ordinary meaning of the undertaking that the Bank is to pay on demand. It would be contrary to the settled rules governing the implication of terms in contracts to imply provisions that would contradict the ordinary meaning of the words of the guarantee in this way (cf. Wood Hall per Gibbs, J at p 451).
45 In addition to imposing upon the Bank an unconditional obligation to pay on demand, the guarantee provides the Bank with an unconditional entitlement to pay the Vendors at any time notwithstanding that no demand has been made. This is clear from the words of the third paragraph which are:
"The Bank may at any time discharge its obligations under this guarantee, whether or not required by you to do so by paying you the Maximum Amount or such lesser amount as you may agree".
46 As a matter of construction this provision is unaffected by the words of the preamble. The Bank's right to pay is expressed to be exercisable at any time, and is unconditional. As is apparent, there is no requirement that payment under that right is to be deferred until such time as a contract is made or which precludes the exercise of that right if there is no such contract. The construction for which Mr Killalea contended is entirely inconsistent with the proper construction of this provision and invites an unwarranted departure from the ordinary meaning of the entitlement of the bank to discharge its obligations at any time whether or not it has been required to do so.
47 It follows that in my opinion the Bank's obligation to pay on demand and its entitlement to discharge its obligation at any time whether or not demand is made, are unaffected by the existence or non-existence of any contract for the sale and purchase of the property in whole or in part and the identities of the parties to it. Whatever the arrangement was between the Plaintiff and the Vendors as at 31 January 2002, the Plaintiff caused the Bank to provide an on-demand guarantee to the Vendors the purpose of which was to make available to them a cash equivalent of $416,500.00. Its terms conform with the terms of the "suicide" instrument referred to in para 35, and have the same effect.
48 It appears that the guarantee was provided whilst the Plaintiff and the Vendors' representatives were engaged in negotiations concerning the sale and purchase of land which involved quite a large sum of money. It may be inferred that they had commercial experience. Had they wished they may have negotiated a different arrangement whereby funds were made available to the Vendors, or the Plaintiff may have arranged with the Bank to provide a different guarantee under which the payment obligation and the discharge entitlement were conditional. These things did not happen. Instead, it is apparent from the terms of the guarantee that at the time it was provided it was the intention of the Vendors and the Plaintiff that the Bank should pay the Vendors up to the maximum amount on demand, or at any time if it wished to do so. Doubtless this means of making funds available to the Vendors was in order to facilitate some commercial negotiations or arrangements between them and the Plaintiff.
49 For the above reasons I hold that the Plaintiff's case on the construction of the guarantee must inevitably fail and should be dismissed.
The alternative claims
50 The other claims for declaratory relief are on the basis, as pleaded, that "the guarantee is applicable referable to the contracts". Having regard to this form of pleading I understood Mr Killalea to submit that the guarantee, as a matter of construction, incorporated by reference the contract the terms of which were said to restrict the Vendors from exercising what would otherwise be their unconditional entitlement to insist on payment under the guarantee, alternatively, that although not a party to it, the Plaintiff is entitled as against the Vendors to rely upon the contract to contest their entitlement under the guarantee.
51 The submissions for the Plaintiff may be summarised as follows. Under the contract the parties proceeded on the basis that the guarantee met the requirement for the deposit under condition 2.6. The contract was wrongfully terminated by the Vendors whereby they were not entitled to claim the deposit and consequently were not entitled to demand payment under the guarantee. The Plaintiff provided the funds to the bank for the guarantee which would be lost to him if payment was made to the Vendors under it. It was said that on the authority of Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 the plaintiff had sufficient interest to afford him standing to demonstrate that the vendors were not entitled to the deposit under the contract and therefore were not entitled to demand payment under the guarantee.
52 I have earlier held that the guarantee is unconditional and that the words of the preamble, on their true construction, do not operate to make the Bank's promise to pay conditional, or to qualify the Vendors' right at any time to demand payment. Although the preamble says that the payment is "in connection with deposit guarantee for the purchase of the property" in my opinion, as a matter of construction it does not import the terms of a contract for the purchase of the property, or of any contract, into the guarantee (cf. eg, Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451). It follows that the claims cannot be sustained on the ground that the contract is incorporated in the guarantee.
53 Nor can the claims be sustained on the alternative ground. There is an exception to the principle of autonomy where there is an underlying contract between the applicant for the guarantee and the beneficiary which restricts the beneficiary's power to demand payment under the guarantee. These exceptions are considered in, for example, Boral and Hortico. Cases in which particular contracts were held to be within the exception include Pearson Bridge (NSW) Pty Ltd v State Rail Authority [1982] 1 AustConstLR 81 and Barclay.
54 In the present case there is no such contract and that is sufficient for it to be held that these claims are untenable. However, for the Plaintiff it is said that it is arguable that in the circumstances the Vendors are not entitled pursuant to condition 9.1 of the contract to keep or recover the deposit provided under condition 2, and if that is established the Vendors are not entitled to payment under the guarantee.
55 There are insurmountable obstacles to acceptance of the submission. Firstly, the Plaintiff derives no legal or equitable right under the contract and has no standing to claim relief against the Vendors in respect of their performance under it (Super League Pty Ltd v Newcastle International Sports Centre Trust (NSWSC, 27 October 1995, Unreported) at pp 17, 18) and Trident provides no assistance. The contract does not provide a benefit to the Plaintiff as a third party and is not an exception to the privity of contract doctrine by which only the parties to a contract are bound by, and entitled to enforce, its terms. Secondly, it is not open on the evidence to find that the contract is an underlying contract which operates as an exception to the principle of autonomy which applies to this guarantee. That is to say, there is no collateral or underlying agreement between the Plaintiff and the Vendors under which resort to the guarantee is made conditional. Thirdly, there is nothing in the contract which is referable to the guarantee. In particular, condition 2, which relates to the provision of a deposit either in cash or by way of bond or guarantee, and condition 9.1, which enables the Vendors to keep or recover the deposit upon termination, are silent as to the Vendors' entitlement to make a demand for payment under the on-demand guarantee. It is clear that the entitlement of the Vendors to make demand is unaffected by the terms of their contract with CSI (cf. Wood Hall per Stephen, J p 459). In the circumstances the claims are misconceived.
56 As to the claim for relief on the issue of unjust enrichment it is unnecessary to recite the competing submissions. It cannot be said that a payment made to the Vendors under the guarantee either upon their demand or by the Bank in exercise of its right to pay at any time would be a benefit unjustly received. No question of unjust enrichment can arise where the Vendors are paid the moneys which the Plaintiff arranged to be provided to them unconditionally, and unaffected by any underlying contract with them. In my opinion the claim is manifestly groundless.
57 The Plaintiff also claims a declaration that he is entitled to recover the deposit said to have been provided under the contract pursuant to an order under s 55(2A) Conveyancing Act (1919) NSW. Section 55(2A) provides:
"(2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon".
58 Mr Killalea submitted that the power of the court under the section, properly construed, to order repayment is not confined to making orders on the application of a purchaser but extends to making such an order on the application of, and for payment to, a stranger to the contract such as the Plaintiff who was the source of funds for the deposit. In support he referred to the phrase "There are no words of limitation expressed in the section … " taken from a statement of Jacobs, J in Horne v Zebra Motor Inn Pty Ltd (NSWSC, 12 September 1963, Unreported) with which statement Street, CJ in Eq. agreed in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at p 272.
59 Section 55 is within Div 1, Pt 4 of the Act the provisions of which apply to contracts for the sale of land and to the rights and obligations of vendors and purchasers under them. The payment of a deposit is to secure the due performance of a contract for the sale of land, a matter which may be seen to be of special importance in a contract concerned with the development of the land, as here. (Romanos v Pentagold Investments Pty Ltd (2003) HCA 58 paras 19, 20, 54). It is sufficient to say that, upon its proper construction s 55 and, in particular s 55(2A), provides no exception to the privity of contract doctrine so as to afford a third party, such as the Plaintiff, the same right as it gives to a purchaser to sue for the recovery of a deposit. Furthermore, when the phrase taken from Horne is read in context it will be plainly apparent that it provides no support for the case sought to be made. Indeed, but a few lines further down the page from where the phrase appears, Street ,CJ in Eq. observes that the section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit (p 272E). He then proceeds to explain the extent of the discretionary supervision of monetary adjustments between parties to a contract pursuant to s 55(2A). The submissions on behalf of the Plaintiff must be rejected and, in my opinion, the claim is also manifestly groundless.
60 A declaration is also sought on an alternative ground to the effect that upon the application of "equitable principle" (sic) the Plaintiff is entitled to an order for the return of the deposit. In respect of this claim my conclusion is the same as for the other claims and for the reasons given in respect of them considered together. There is no equitable principle of which I am aware which warrants the intervention of the court in the circumstances of this case.
61 In para 15 of his written submissions dated 12 February 2004 Mr Bradford, for the Vendors, stated that if these proceedings are dismissed the Vendors will call on the Bank for payment under the guarantee but any such call will be limited to an amount equal to the deposits payable under the contracts for the units listed in Schedule 1 of the summons together with interest thereon at the contractual rate of 8% as from the date of exchange. In those circumstances I did not understand the Plaintiff to press the claim for the declaration sought in para 8 of the fourth amended summons that the Vendors were not entitled to claim moneys under the guarantee in respect of the contracts for the sale of the lots in Schedule 2 to the pleading, and therefore it is unnecessary for me to rule on it.
62 For the above reasons I am satisfied that the Vendors have demonstrated that the Plaintiff's claims for relief as pleaded in his fourth amended summons are so clearly untenable that they cannot possibly succeed and have thus met the test for summary dismissal under General Steel Industries Inc. Accordingly the Vendors are entitled to an order under SCR Pt 13, r 5 that these proceedings be dismissed.
63 There remains outstanding the question as to any continuation of the undertaking given to the court on behalf of the Vendors on 13 February 2004, and the question of costs. In the circumstances it is appropriate that I direct the Vendors to bring in short minutes and afford the parties the opportunity to address me in relation to costs. Arrangements should be made with my Associate by 17 September 2004 for the re-listing of the matter.