[2004] HCA 28
Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549[1987] HCA 15
Baeg v Wink Singh Pty Limited [2024] NSWSC 589
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269[1936] HCA 40
Jowitt v Callaghan (1938) 38 SR (NSW) 512
Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500[2023] HCA 6
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Judgment (14 paragraphs)
[1]
Background
The background to the dispute is not in contention.
The registered proprietor of the Properties (Taylor Square TT Pty Ltd, the first respondent) entered into separate contracts for the sale of each of the Properties on 18 September 2023 (the Sale of Land Contracts). In respect of the Kinselas Hotel, the purchaser was Kinselas Pty Ltd. In respect of the Courthouse Hotel, the purchaser was The Courthouse (NSW) Pty Ltd.
At the same time, contracts for sale of business (the Sale of Business Contracts) were entered into by Taylor Square Fund Pty Ltd (the second respondent, which owned the businesses and assets used in the businesses of the respective hotels), as vendor, with two other entities, Kinselas Management Pty Ltd and The Courthouse Management Pty Ltd, respectively, as purchasers.
As adverted to above, at the time of exchange of the four contracts, Mr Toma was the sole director, secretary and shareholder of each of the purchaser companies. The purchaser companies (the first to fourth defendants in the proceedings at first instance) were incorporated as special purpose vehicles shortly before entry into the respective sale contracts; and each had a share capital of $20.
The respective Sale of Land and Sale of Business Contracts (which were interdependent with each other) contained, relevantly, guarantees by Mr Toma that were in substance in the same terms (see below). The total purchase price under the respective sale contracts was $61 million. A 10% deposit was payable under the respective Sale of Land Contracts in two instalments: the first (5%) on exchange of contracts; the second (5%) on the earliest of three dates (as it transpired, this was due on 18 March 2024). Under the Sale of Land Contracts (which were in standard form), the deposit was payable to a depositholder as stakeholder. Under the Sale of Business Contracts, a 10% deposit was payable on exchange and was released immediately to the vendor.
Mr Toma executed each of the four contracts, in both his capacity as director of the purchaser companies and in his individual capacity as guarantor.
Mr Toma ceased to be a director of the purchaser companies on 28 November 2023 (the director now being Mr Toma's business partner, Mr John Palasty). The primary judge noted that this appeared to have been part of a broader restructure of multiple companies in which both Mr Toma and Mr Palasty were involved (First Judgment at [20]).
Completion of each of the sale contracts (expressed to be interdependent with completion of the others) was due on 18 March 2024 (six months after the contract date) although there was provision for extension of the completion date (see cl 66 of the Sale of Land Contracts; cl 25 of the Sale of Business Contracts). Completion was required to occur by the payment of cleared funds through PEXA. The purchase price under each contract was payable "on completion", less any deposit paid.
There were negotiations between the parties as to the requested extension of the date for completion of the contracts (see First Judgment at [21]-[24]). Ultimately, it was agreed that the vendor would issue a notice to complete requiring settlement to occur on 29 April 2024, subject to the release of a sum of $761,960.64 which had been paid to the selling agent on 15 March 2024 and the payment of interest required under the contracts from the date of the notice to complete until completion. (As at 18 March 2024, there was a sum outstanding in respect of the second instalment of the deposits under the Sale of Land Contracts.)
Accordingly, the completion date for the respective contracts was extended to 29 April 2024. The purchasers failed to complete on that date (and did not respond to enquiries as to their intention to complete).
On 22 May 2024, the respondents (the vendors under the respective sale contracts) commenced proceedings in the Equity Division seeking orders for specific performance against both the purchasers and Mr Toma, as guarantor. The respondents sought, and on 31 May 2024 were granted, expedition of the proceedings. The parties agreed that the question of specific performance would be dealt with on the summons, preserving the purchasers' (i.e., the corporate defendants') rights to seek damages by way of cross-claim later if need be (see First Judgment at [32]). The purchasers had apparently alleged that the sale contracts had been terminated by repudiatory conduct on the part of the vendors; and were considering a cross-claim for damages or set-off in circumstances where the vendors were said to have misrepresented the value of the contracts (see First Judgment at [31]).
The hearing commenced on 18 June 2024 before Rees J. At the outset of the hearing, her Honour was informed that the defendants (the purchasers and Mr Toma) would not read any evidence and that the corporate defendants (the purchasers) would neither consent to nor oppose the orders sought for specific performance (First Judgment at [35]). Her Honour noted that the only issue to be considered was the construction of the guarantee given by Mr Toma (First Judgment at [35]).
At the conclusion of the hearing on 18 June 2024, orders were made by the primary judge for specific performance by the purchasers of the sale contracts, requiring completion at 2pm on 1 July 2024 (First Judgment at [2]). Her Honour noted that the remaining issue (on which her Honour had reserved judgment) was whether the vendors were presently entitled to an order for specific performance against the guarantor, Mr Toma, such that he ought be ordered to perform the contracts at the same time as the purchasers.
On 28 June 2024, the primary judge published her reasons for judgment (being the First Judgment), declining to order specific performance against Mr Toma before the time for specific performance by the purchasers had expired, and stood the proceedings over until after the date for specific performance by the purchasers.
Perhaps unsurprisingly (since the defendants had advanced the proposition before her Honour that an order for specific performance would be futile as neither the purchasers nor Mr Toma were in a position to complete - see First Judgment at [34]), the purchasers did not complete the sale contracts on 1 July 2024. In submissions on the present appeal, the appellant refers to the respondents having foreshadowed, when the contracts did not settle on 1 July 2024, the possibility of contempt proceedings against the then sole director of the purchasers, Mr Palasty (see appellant's submissions at [12]) but no such proceedings were commenced.
The matter came back to the primary judge in the Expedition List on 15 July 2024 when further submissions were made by the vendors and Mr Toma as to the order for specific performance sought by the vendors against Mr Toma.
On 9 August 2024, her Honour ordered that the respective sales contracts be specifically performed by Mr Toma and carried into execution (Order (1)) and directed that Mr Toma pay the balance of the moneys due under the respective contracts, inclusive of the balance of the purchase price, interest and adjustments as required under the contracts, to the plaintiffs or as the plaintiffs direct, "in return for the Plaintiffs conveying title to the properties and the relevant business assets to the Defendants through PEXA at 2pm on 23 August 2024" (Order (2)). Her Honour ordered the defendants to pay the plaintiffs' costs of the proceedings (Order (3)) and granted liberty to apply on 24 hours' notice (Order (4)).
Pausing here, there can immediately be seen a difficulty posed by those orders, in that Mr Toma was being ordered to perform an obligation not only to pay the purchase price payable on completion but also to take a conveyance of the Properties (that being an obligation that on no view had he expressly assumed). Nor was it clear how the conveyance to "the Defendants" collectively (including Mr Toma) was intended to occur. Even if, as the respondents contend, the obligation of the guarantor was to pay the purchase price if the purchasers did not, it was not made clear how such an obligation obliged the guarantor simultaneously to take a conveyance of the Properties and business assets (as he has now been ordered to do).
By consent, on 21 August 2024, the orders for specific performance made against Mr Toma were stayed until determination of this appeal (hence the reason for expedition of the appeal had to a large extent, if not wholly, gone away by the time of the hearing of the appeal).
[2]
Appeal
The appellant relies upon an amended notice of appeal, which appears from JusticeLink not to have been formally filed. The appellant is to file this amended notice of appeal within 7 days from this judgment. In the amended notice of appeal, the appellant challenges the primary judge's construction of the guarantee (Grounds 1-3) and the appropriateness of the grant of specific performance in light of that construction (Ground 4). Those appeal grounds are as follows:
1. Her Honour erred in concluding that an order for specific performance could be made against the appellant (Mr Toma) in circumstances where he had not assumed any obligation as a principal in the contracts, the subject of his guarantees described at J6 (Contracts) and had no obligation himself to perform those Contracts.
2. Her Honour erred in construing the guarantee in each of the Contracts (Guarantee) to mean that Mr Toma could be required to perform the Contracts.
3. Her Honour ought to have construed the Guarantee in accordance with the interpretation given to a similar guarantee by Mason CJ and Gaudron J in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245, namely:
a. The first sentence of the Guarantee gave the Respondents a right to claim damages only;
b. The second sentence of the guarantee gave the Respondents a right to sue Mr Toma for money due and owing under the Contracts, as a liquidated debt;
c. On the proper construction of the Contracts, the Respondents could not sue for the purchase prices before the Contract [sic] were completed by conveyance; and
Accordingly, the Guarantee did not require Mr Toma to perform the Contracts by paying the purchase price before any conveyance.
4. Her Honour erred in ordering relief quia timet, when Mr Toma was not required to pay the purchase price at settlement.
The principal issue on the appeal is whether, properly construed, the guarantee given by Mr Toma in the respective sale contracts requires Mr Toma to pay the balance of the purchase price and other moneys payable on completion in circumstances where the purchasers have failed to complete the contracts.
[3]
Notice of Contention
The respondents served a notice of contention (which was annexed to their submissions on the appeal) by which they contend that:
1. If, contrary to the primary judge's conclusion, the appellant is only obliged to ensure that the purchasers perform their contracts, he should be ordered to perform that obligation by paying the purchase price in the manner set out in the primary judge's orders of 9 August 2024.
What was meant by "in the manner set out in the primary judge's orders of 9 August 2024" was not entirely clear but what seems to have been contemplated is simply that Mr Toma should be ordered to pay the amount that represents the moneys payable by the purchasers on completion (and that at the same time there would be a conveyance either to the purchasers collectively, or separate conveyances to the purchasers under the four separate contracts, but in either event there would not be a conveyance to the guarantor) (see AT 14). There was no dispute that the purchasers' contractual obligation to pay the purchase price accrues only on a simultaneous completion of the sale contracts (see AT 23).
I also note that the appellant submits that the notice of contention is misconceived in that it does not seek to affirm the primary judge's orders for different or additional reasons but, rather, seeks different orders to those made by the primary judge. It is not necessary to address this argument given the conclusion reached as to the outcome of the appeal.
[4]
Guarantee
It is convenient to set out at this stage the terms of the guarantee (which as noted is in the same terms in the respective contracts). As the primary judge focused on the guarantee contained in the Sale of Land Contract in respect of the Kinselas Hotel (cl 60.2), so will I. Clause 60.2 provides that:
60.2 Guarantee
The Guarantor guarantees to the Vendor prompt performance of all of the obligations of the Purchaser contained or implied in this Contract. If the obligation is to pay money, the vendor may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person.
Clause 60.3 then provides a corresponding indemnity:
60.3 Indemnity
If the Purchaser is not bound by some or all of its obligations under this Contract, the Guarantor agrees, by way of indemnity and principal obligation, to pay to the vendor the amount which would have been payable by the Guarantor to the Vendor under the guarantee in clause 60.2 had the Purchaser been bound.
The respondents submit that the principal issue in this appeal is whether, as the primary judge found, cl 60.2 requires the appellant to pay the purchase price on completion if the purchasers do not complete.
[5]
First Judgment
In the First Judgment, her Honour expressed the preliminary view that "[o]n the face of it [i.e., of cl 60.2], should the purchasers fail to complete the purchase on 1 July 2024, then Mr Toma is not contractually obliged under the terms of the guarantee to provide funds to enable the contracts to be completed but, rather, is liable to the vendors, either in debt or for damages, for the consequences of the purchasers' non-performance of their contractual obligations" ([56]). This is the construction for which Mr Toma contends.
Her Honour had noted (at [53]) the parties' agreement that the first sentence of cl 60.2 could fairly be described as a "see to it" obligation (i.e., "an undertaking by the guarantor that the principal obligor will perform its contract with the obligee"). This may be contrasted with the concept of an "answer for" obligation - as discussed by Mason CJ in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 (Sunbird), at 256, to which I will refer in due course. The significance of the former, a "see to it" obligation, is that breach of such an obligation ordinarily sounds in damages (which the respondents did not seek against the appellant).
Her Honour noted that the guarantor's obligation in the first sentence of cl 60.2 was not limited to monetary obligations but extended to "all" obligations ([53]). Her Honour expressly noted that the vendors' remedy against Mr Toma under the guarantee ordinarily would be damages ([55]).
At [67], her Honour noted that, unlike the relevant contractual provision in Baeg v Wink Singh Pty Limited [2024] NSWSC 589 (Baeg), to which I refer in due course, cl 60.2 did not provide that the guarantee was a "principal obligation" of the guarantor but went on to observe that it did not automatically follow from this that the purchasers and guarantor did not have a concurrent liability nor that the guarantor did not have a direct liability to the vendors.
Her Honour left open the possibility that the vendors might ultimately persuade the Court that they were entitled to an order for specific performance should the purchasers fail specifically to perform the sale contracts.
[6]
Second Judgment
In the Second Judgment, her Honour noted that the issue as to specific performance against a guarantor had been inadequately canvassed at the first hearing ([2]) and that the further submissions of the parties on that issue had been of great assistance ([3]).
From [20], her Honour set out the principles of construction applicable to commercial contracts (about which there is here no dispute), referring to Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd (2023) 276 CLR 500; [2023] HCA 6 at [27]; and, at [22], her Honour referred to the authorities as to the construction of ambiguous provisions in contracts of guarantee (again about which there is no dispute here) referring to Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561; [1987] HCA 15; Andar Transport Pty Ltd v Brambles Ltd (2004) 217 CLR 424; [2004] HCA 28 at [17]-[19]; [23] and Bofinger v Kingsway Group Ltd (2009) 239 CLR 269; [2009] HCA 44 at [53].
Her Honour observed at [30] that the contracting parties in the present case might be considered commercially sophisticated; that the contracts comprised a suite of interdependent contracts with a large number of bespoke provisions; and that the contracts were drafted against a settled background of conveyancing law and practice, including the principles established by McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 (McDonald) and Sunbird.
At [32], her Honour noted that at the time the contracts were exchanged Mr Toma was the only director and thus the only guarantor; and said that a reasonable business person in the position of the parties, considering the surrounding circumstances and the commercial purpose of the contracts, would have understood that the vendors looked to Mr Toma to bring the contracts of sale to a successful conclusion "by placing the special purpose vehicles in funds, either directly or by obtaining sufficient finance to complete the transaction, when the time came". Her Honour also said that "[i]n consideration for acceding to his request to contract with the special vehicle companies rather than, say, directly with himself, Mr Toma provided the vendors with the protections and security conferred by that guarantee and indemnity". Her Honour (in my opinion, correctly) identified the question that was raised as being the measure of protection in fact conferred by the guarantee and indemnity.
I interpose to note that the fact that a reasonable business person would have understood the purpose of the guarantee as providing a measure of protection for the vendor does not preclude the possibility that the guarantee in terms might not provide the vendor with the remedy it ultimately sought when the purchasers failed to complete - it merely means that the drafting of the guarantee may not have been effective to extend to the relief that was ultimately sought. As commercially sophisticated parties, acting with the benefit of legal advice, it would have been a simple matter to draft the sale contract expressly providing for the remedy for which the respondents now contend.
At [34], her Honour noted that the structure of cll 60.2 and 60.3 observed the distinction between a guarantee and indemnity as described in Canty v PaperlinX Australia Pty Ltd [2014] NSWCA 309 (at [38]-[39]), which her Honour there extracted.
Her Honour agreed with the submission by Mr Toma that (unlike the position in Ryan v UPG 322 Pty Ltd [2023] NSWSC 1293 (Ryan)) his obligation was not direct or coordinate with the purchasers, saying that there was no attempt by the draftsperson to impose a primary liability on the guarantor, and that this may be contrasted with the wording of the indemnity ([35]). However, her Honour considered that this was not dispositive of the question (as to the proper construction of the guarantee).
Her Honour placed emphasis on the fact that, pursuant to the first sentence of cl 60.2, Mr Toma had guaranteed "prompt performance of all of the obligations of the Purchaser", noting that the word "all" included both monetary and non-monetary obligations. Her Honour said that this was made plain by the second sentence which set out further details "[i]f the obligation is to pay money" ([36]). Having referred to Mason CJ's observation in Sunbird at 255 as to a guarantee to secure the performance of a purchaser's non-monetary obligations (see below), her Honour said that she did not take the Chief Justice's exposition of contractual remedies (i.e., the statement that, if the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract) to exclude equitable remedies which may be available in an appropriate case ([36]).
At [37], her Honour said:
What is guaranteed in cl 60.2 is "prompt performance" by the purchasers of "all" obligations under the contracts, including those "contained or implied" in the contracts. The guarantor's promise to secure the performance of the principal's obligations may be collateral to the promise of the principal obligor and in the nature of a distinct and separate promise to perform the principal obligation if the principal obligor did not: Jowitt v Callaghan (1938) SR (NSW) 5123 at 517 (Jordan CJ). Given the commercial context, a reasonable businessperson in the position of the parties would have understood that Mr Toma promised that his special purpose vehicles would perform their obligations under the contracts of sale on time and without delay. He would make it happen. The most important of these obligations, of course, was to complete the purchase of the land and businesses on the date required by the contracts. Given the simple, broad language used and the commercial context in which the guarantee was given, I consider that the first sentence of cl 60.2 is a distinct and separate promise to perform the principal obligation if the purchasers did not.
Pausing here, the appellant identifies the principal error in her Honour's judgment as being the conclusion expressed in the last sentence of [37] (which is repeated in effect in the last sentence of [43]). As I explain in due course, I agree that the construction of the first sentence of cl 60.2 as imposing a distinct and separate promise to perform the principal obligation if the purchasers did not is erroneous.
As to the second sentence of cl 60.2, under which the vendors are permitted, if the obligation is to pay money, to recover the money from Mr Toma as a liquidated debt without first enforcing any rights against the purchasers, her Honour said that an obligation to pay money was not the same as a debt obligation "such as that considered in Sunbird (being when the vendor is entitled to sue in debt for the unpaid purchase price)" ([38]). Her Honour considered that, in the context of cl 60.2, "obligation" simply referred to the duty arising out of the contract (referring to Professor Carter's description of such an obligation as "an undertaking that an event - payment to the payee - will occur" in JW Carter, Carter's Breach of Contract (2nd ed, 2018, LexisNexis) at 46, [2-36]).
Her Honour noted that the contracts in question contained multiple obligations to pay money, the most significant of which was the obligation to pay the balance of the purchase price on settlement; and said that the precise content of that obligation changed from day to day, depending on when settlement takes place, after allowing for all adjustments and any interest ([38]). Her Honour said that the obligation to pay money "arises under the contract before attendance at settlement" and accepted the vendors' submission that "obligation … to pay money" (in cl 60.2) is wider than an obligation to pay a liquidated debt ([38]).
Her Honour considered, with reference to the second sentence of cl 60.2, that the guarantee was more favourable to the vendors than that in Ryan; and said that in the second sentence the parties had "simply agreed that the guarantor will pay the sum as a debt" and that, notwithstanding the common law position expounded in Sunbird, the parties had agreed that the guarantor "will meet the purchaser's obligation to pay money as a debt obligation" ([39]).
Having thus construed cl 60.2, her Honour turned to consider whether an order for specific performance should be granted against Mr Toma. At [41], her Honour referred to the observation of Parker J in Ryan (at [85]) to the effect that equitable relief is available on a quia timet basis which does not depend on any liability existing at law. Her Honour quoted Parker J's observation that he saw no reason in principle why specific performance should not be granted against the guarantor on the same basis (i.e., on a quia timet basis), accepting that moneys do not need to be due and payable before equity can order the party with the contractual obligation to perform it. Her Honour endorsed Parker J's further observation in Ryan at [78] that the fact that the purchase price is not currently a debt owing at law reinforced the conclusion that relief at law was inadequate and was a reason for granting specific performance, not withholding it. Her Honour also extracted Parker J's observations in Ryan at [79] (including to the effect that specific performance did not in principle depend on a prior breach by the purchaser and that all that was required was a sufficient risk of non-compliance to justify a decree).
At [42], her Honour noted that the sale contracts had not been terminated and remained on foot; that the purchasers had repeatedly failed to complete the purchases on the date for completion (as extended as specified in the notice to complete or in accordance with the orders for specific performance); and that the purchasers had not promptly performed their key obligation under the contracts. Thus, her Honour said, the guarantee was presently engaged.
Her Honour accepted that, following Sunbird, the vendors were "doubtless entitled" to sue Mr Toma for damages for breach of contract if and when the contracts were terminated (a proposition with which the appellant does not cavil) ([43]) but repeated her conclusion that, by the first sentence of cl 60.2, Mr Toma had undertaken to render performance if the purchasers did not.
At [44], her Honour said that there was every reason to think that Mr Toma would not ensure that the purchasers would promptly perform their obligations under the contracts and that this was notwithstanding that, when the contracts were executed, Mr Toma was in complete control of the purchasers. Her Honour contrasted this with the position the subject of Mason CJ's comment in Sunbird (that rarely do guarantors have control of, or the capacity to influence, the principal debtor - see at 255-256), which was referred to by Parker J in Ryan at [76] as a comment to the effect that in the ordinary course the guarantor does not control the borrower. Her Honour noted that, even though Mr Toma was no longer a director of the purchasers, his business partner was; and her Honour considered it appropriate in all of the circumstances to compel Mr Toma to perform his obligations.
I note that the comment by Mason CJ in Sunbird as to it being rare that guarantors have control of, or the capacity to influence, the principal debtor was in the context of his Honour's view of the nature of the guarantor's obligation as then understood (see the full quote extracted below). Mason CJ there considered it "fictitious and quite unrealistic" to suggest that the true nature of the guarantor's undertaking was to "see to it" that the debtor performs its obligation rather than a promise to "answer for" the debt or default of the debtor. As already noted, in the present case her Honour had observed (First Judgment at [53]) that the position of the parties was that the first sentence of cl 60.2 could fairly be described as a "see to it" obligation (i.e., that Mr Toma undertook that the purchasers would perform their contractual obligations). However, her Honour's ultimate construction of the clause in the Second Judgment was that Mr Toma assumed a distinct obligation "to render performance if the purchasers did not".
The orders made by her Honour, relevantly, included:
1. Order that the [sale contracts] (as those terms are defined in the Orders made on 18 June 2024) be specifically performed by the Fifth Defendant [Mr Toma] and carried into execution.
2. Direct that the Fifth Defendant pay the balance of the monies due under the [sale contracts], inclusive of the balance of the purchase price, interest, and adjustments as required under the contracts, to the Plaintiffs or as the Plaintiffs direct, in return for the Plaintiffs conveying title to the properties and the relevant business assets to the Defendants through PEXA at 2pm on 23 August 2024.
It can immediately be seen (as adverted to earlier) that there is some disconformity between the orders as made and the obligations under the respective sale contracts. None of those contracts obliges, or makes provision for, Mr Toma to take a conveyance of the Properties or business assets as the case may be. Yet Order 2 directs that the vendors (the plaintiffs) convey title to the Properties and the relevant business assets "to the Defendants", i.e., to the corporate purchasers and Mr Toma collectively. Read literally, what appears to be contemplated by the orders is that there be simultaneous payment by Mr Toma of the balance of the purchase price and other moneys due under the respective contracts with the transfer of each of the Properties and the business assets to all five defendants collectively (presumably a transfer of title to them jointly) even though under the four sale contracts there is a separate purchaser for each of the respective Properties and assets (and none provides for Mr Toma to take title to the relevant property or assets). Senior Counsel for the respondents argued that there had been no difficulty raised before the primary judge with the form of order that was made on 9 August 2024 but that does not address the confusion raised by the order as to the entity or entities required to take the conveyance for which order was made (see the debate at AT 15; 23-25).
[7]
Sunbird
As much of the argument on the appeal focused on the decision in Sunbird, and the two cases at first instance in the Supreme Court that have considered the issue as to whether specific performance should be granted against a guarantor (including Ryan and Baeg), it is convenient at the outset to summarise that decision.
I start with the decision of Gaudron J because Mason CJ (with whom Deane, Dawson and Toohey JJ agreed) commenced his judgment at 253 by expressly agreeing with the reasons given by Gaudron J that in the circumstances of the case the balance of the purchase price did not become a debt payable by the purchaser to the vendor.
The facts of the case, set out in the judgment of Gaudron J can be summarised briefly as follows.
Sunbird Pty Ltd (the appellant in the High Court) had agreed to sell a home unit to the purchaser (Boheto Pty Ltd). Under the contract for sale a deposit was paid on exchange of contracts and the balance of the purchase price was payable on settlement. Settlement was due 14 days after notice from the vendor to the purchaser that the relevant building unit plan had been registered. The respondents jointly and severally guaranteed:
... THE PERFORMANCE BY the said abovementioned Purchaser OF ALL THE TERMS AND CONDITIONS of the Contract including the payment of all moneys payable hereunder by the said abovementioned Purchaser.
The relevant building unit plan was registered on 10 June 1982; the purchaser's solicitors were so advised on 11 June 1982 and were informed that settlement was due within 14 days. By letters and notice dated 24 June 1982, received by the vendor's solicitor the following day, the purchaser gave notice that it thereby "voided" the contract. The vendor elected to treat the contract as still on foot and instituted proceedings against the purchaser seeking specific performance of the contract. An order for specific performance was made by the Supreme Court of Queensland. As at the time of the High Court hearing of the appeal, that order had not been complied with and no application had been made by the vendor for discharge of that order. No settlement had yet taken place (see Gaudron J's judgment at 265-266).
Pausing here, the appellant in the present case points out that the same circumstances have here arisen in that there was an order for specific performance made against the purchasers; that order has not been complied with by the purchasers; and no settlement has taken place.
Gaudron J noted at 266 that the question which arose on the appeal was "whether the appellant [the vendor] is entitled to look to the respondents as guarantors for payment of the money payable by the purchaser to complete the contract". Again, the present appellant says that the same question arises in this case.
At first instance in the Sunbird case, judgment was entered in favour of the vendor (Sunbird) against the respondent guarantors for the balance of the purchase price payable under the contract and interest and other moneys due under the contract. That judgment was set aside on appeal by the Full Court of the Supreme Court of Queensland and judgment was ordered in favour of the respondents. Kelly SPJ, with whom Matthews J agreed, held that the vendor was only entitled to recover damages from the respondents for breach of their contract of guarantee and that damages were not recoverable while the contract between the purchaser and the vendor remained on foot. Stephenson J determined the case on a different basis, holding that the respondents were obliged by their guarantee to pay the balance of the purchase price if the purchaser failed to do so but finding that the purchaser had rescinded the contract and accordingly no moneys were payable.
Gaudron J noted that in the High Court the primary argument advanced on behalf of the vendor was that the balance of the purchase price was a debt payable by the purchaser notwithstanding that the contract had not been completed by conveyance and that the respondents' guarantee required them to discharge the purchaser's indebtedness. Her Honour rejected that argument (noting that it could be disposed of shortly by reference to the general rule that, in an executory contract for the sale of the land, where the balance of the purchase price is payable "upon settlement", the vendor cannot sue for the purchase price payable under a contract which has not been completed by conveyance - referring to McDonald) (see Gaudron J at 267).
I note that the respondents here accept that Sunbird establishes that no debt becomes due and payable (at least as a general rule) under an executory contract for sale of land (i.e., unless title has been conveyed) (see at AT 11) but the respondents argue that the second sentence of cl 60.2 goes beyond an obligation to pay debts presently due and payable (and extends to all obligations to pay money). The difficulty with this argument is that the second sentence of cl 60.2 is better read as being directed to the manner by which a subset of the obligations in the first sentence (i.e., where there is an obligation to pay money) can be enforced against the guarantor (i.e., as a liquidated debt without first enforcing rights against the purchaser). The effect of the general rule to which Gaudron J referred is that the obligation to pay money under a contract for the sale of land arises or accrues simultaneously with (and not before) conveyance; so that there could be no enforcement of rights against the purchaser in relation to the balance of the purchase price unless and until there is a conveyance of title.
The alternative argument raised by the vendor in Sunbird was that under the guarantee the respondents assumed a liability to pay the balance of the purchase price if the purchaser failed to do so (the same argument here made by the respondents). Gaudron J noted (at 268-269) that this argument was made by reference to what was claimed to be the nature of the guarantee having regard to its commercial purpose. Her Honour said that "[i]n this context it was submitted that the obligation arising under a guarantee is not merely an obligation to pay damages in the event of breach, but may encompass an obligation to perform the contractual terms guaranteed".
Gaudron J addressed, and rejected, this alternative argument (from 269-272). Her Honour said that the question of the effect of the guarantee was to be answered by the construction of the guarantee given in the present case (271). Her Honour said that in a context where the purchase price was payable by the purchaser upon settlement and was not recoverable as a debt prior to settlement, a promise of "performance by the … purchaser of all the terms and conditions of the contract including the payment of all moneys payable" did not, standing alone, import an obligation that the guarantors would themselves pay the balance purchase price if the purchaser failed to do so. Her Honour said that such an obligation, if it exists, must be spelt out from the word "guarantee" in its particular contractual setting, and that in the case before the court the contractual setting did not permit of such an exercise when regard was had to cl 11 (which enabled the purchaser to nominate another purchaser). Her Honour considered that cl 11 itself recognised and pointed to the difference in form between the respondents' guarantee and the guarantee to come into operation in the event of the purchaser nominating another purchaser in its place (the latter being an express undertaking by the then-former purchaser as to the due and punctual payment of the purchase moneys by the nominated purchaser in the manner and at the times and places provided). Her Honour said that in light of the express undertaking in the form of guarantee incorporated into cl 11 there was no basis for reading into the quite differently worded guarantee given by the respondents an obligation on their part to pay the balance purchase price in the event of the purchaser's failure to do so in accordance with the contract (272).
Her Honour then dealt with the vendor's argument that a claim for damages based on breach of the guarantee would lead to the same judgment as was entered at trial (an argument that it is not necessary here to address).
Turning back to Mason CJ's reasons, as noted above his Honour expressly agreed, for the reasons given by Gaudron J, that the balance of the purchase price did not become a debt payable by the purchaser since the money was due upon settlement and there had been no settlement and no conveyance of the property sold (253). His Honour said that:
Once this is accepted, the appellant is faced with a daunting task in making good the submission that the respondent guarantors are liable under their joint and several guarantee to pay the balance of the purchase price and interest thereon, notwithstanding the absence of an accrued liability on the part of the purchaser to make the payment.
So too, I interpose to note, do the vendors here face such a task.
His Honour noted the distinction between a guarantee and an indemnity (and the emphasis in the cases on the difference between the guarantor's secondary liability and the indemnifier's primary liability (observing that there is an element of ambiguity in the distinction unless primary liability is understood to mean ultimate liability)) (254).
At 255, his Honour, having pointed to the fact that the payment of a debt is but one instance of the wide range of obligations the performance of which may be made the subject of a guarantee, said:
So it is that a creditor's rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.
After reference to statements made by Lord Diplock in Moschi v Lep Air Services [1973] AC 331 at 348 (Moschi) to the effect that by the beginning of the nineteenth century the contractual promise of a guarantor to guarantee the performance by a debtor of his obligations to a creditor arising out of contract gave rise to an obligation on the part of the guarantor "to see to it that the debtor performed his own obligations to the creditor", rather than an obligation by the guarantor himself to pay a sum of money to the creditor (such that the creditor's remedy for the guarantor's failure to perform lay in damages for breach of contract only), Mason CJ went on to say that:
It may be that as a matter of history the view that the guarantor has an obligation "to see to it" that the debtor performs his obligation explains why the guarantor is not entitled to notice of the debtor's default and why the creditor's cause of action arises on that default. But the view certainly does not accord with the nature of the guarantor's obligation as it is understood today. Rarely do guarantors have control of, or the capacity to influence, the principal debtor such that they would willingly assume an obligation to ensure that he performs his primary obligation. It is fictitious and quite unrealistic to suggest that this version of the guarantor's undertaking, rather than a promise "to answer for" the debt or default of the debtor, is the true nature of the guarantor's obligation. …
Mason CJ said that his view of the matter accorded with that expressed by Lord Reid in Moschi, where his Lordship rejected the notion that there was a common rule applicable to all guarantees. Mason CJ said:
There are, however, two common classes of guarantees of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.
Mason CJ considered that the terms of the guarantee in the case before him fell within the second class of case "except, perhaps, in so far as the promise relates specifically to the payment of all moneys payable" in which case he considered it might well fall within the first category. His Honour said that:
Accordingly, if the balance of the purchase price had become payable and had not been paid by the purchaser, the vendor might well have been entitled to sue the respondents for a liquidated amount, rather than claim damages for breach of contract. As it is, the balance of the purchase price did not become payable.
His Honour rejected the contention by the vendor that this interpretation of the guarantee failed to give effect to the purpose for which the guarantee must be taken to have served (namely to enable the vendor to recover the price irrespective of the position between the vendor and the purchaser). Mason CJ considered that the short answer to that contention was that the terms of the contract of sale, the guarantee and the matrix of circumstances in which the contract was entered into did not support that "sweeping assertion". His Honour considered the terms of the guarantee to be specific and clear on that point, emphasising that the guarantee included the payment of "all moneys payable" under the contract and that the promise of the purchaser was to pay "upon settlement".
His Honour then referred to submissions by the vendor as to recent decisions in other jurisdictions which he considered could not influence the construction of the guarantee in question and or which were of no relevance to the case, before turning to the submission that the judgment at first instance could be supported as an award of damages for breach of contract (which, as noted above, is not necessary here to consider).
[8]
Other decisions
The primary judge in the present case referred to the decisions of Parker J in Ryan and Baeg.
In Ryan, Parker J addressed an argument by counsel for the defendants that relied heavily on the decision in Sunbird. At [30], Parker J said that the decision needed to be understood in light of the prior decision in Moschi, where the guarantor had guaranteed the performance by the principal debtor (a company controlled by the guarantor) of its obligations to make weekly payments at a specified rate "together with" a final payment. The payments related to a debt payable by instalments by the company. The company defaulted in making the instalment payments and the creditor, having terminated the contract for breach, sued both the company and the guarantor for the full amount of the debt. The guarantor argued that under the terms of the guarantee he had only undertaken to pay the instalments as they fell due; and had not undertaken to pay later instalments which did not fall due until after termination or damages arising upon termination.
From [32], Parker J noted the different reasoning of the members of the House of Lords for their decision that the guarantor was liable for the full amount of the unpaid debt: Lord Reid considering that the guarantor's obligation was of the kind that he had undertaken that the principal debtor would carry out his contract, and that when the principal debtor failed to do so he not only breached his own contract but put the guarantor in breach of the contract of guarantee for which the creditor could sue the guarantor (not for the unpaid instalment but for damages, his Lordship equating those damages to the full amount due under the contract); Lord Diplock (with whom Lord Simon of Glaisdale agreed) considering that the obligation of the guarantor was to "see to it" that the debtor performed his obligations and the guarantor's failure to do so sounded in damages for breach of contract only.
From [37], Parker J then considered the Sunbird decision and two first instance decisions of the Supreme Court of Queensland which had considered it (Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250 and Sunbay Projects Pty Ltd v PR Wieland Holdings Pty Ltd [2010] QSC 368) before referring to Jowitt v Callaghan (1938) 38 SR (NSW) 512 (Jowitt), McGuiness v Norwich and Peterborough Building Society [2012] 2 All ER (Comm) 265 (McGuiness) and Wharf Street Pty Ltd v Amstar Learning Pty Ltd [2004] QCA 256 (Wharf Street).
At [65], his Honour placed emphasis on the context of the above authorities, describing Moschi and Sunbird as debt recovery actions in which the question was what, as a matter of construction of the guarantee, was the scope of the guarantor's obligation; Jowitt and Wharf Street as debt recovery actions where the question was whether the supervening insolvency of the principal debtor prevented the recovery of the debt from the guarantor; and McGuinness as also a debt recovery action, in which the question was whether the action gave rise to a debt for the purposes of the procedural rules of the Court. His Honour said that none of the cases involved consideration of equitable principles (with the qualification that Lord Diplock's speech briefly touched on the subject).
At [70], his Honour rejected the submission that the case before him was indistinguishable from Sunbird, saying that it faced three obstacles. First, that if the guarantor could not be said to be liable until there had been a default by the purchaser that default had occurred when the purchaser failed to complete on the date required under the contract (even though time was not then of the essence and the breach would not have permitted termination of the contract).
Second, his Honour was not sure that the guarantee obligation in the present case arose only on the purchaser's default, attaching importance to the fact that the clause in question provided that the guarantor's obligation was as principal; and referring to considerations of business commonsense. The critical factor in his Honour's opinion was the fact that the guarantor's obligation was stated to be given as principal ([77]) and his Honour considered that both as a matter of language and business commonsense the better reading of the clause in question was that it gave rise to a principal obligation.
Third, his Honour considered that a fundamental obstacle derived from the nature of the proceedings, namely that the claim was not one in debt or damages but was an equitable claim for the grant of orders of specific performance ([78]). His Honour said that the fact that the purchase price was not currently a debt owing at law "only reinforces the conclusion that relief at law is inadequate" and said that it was a reason for granting specific performance. At [79] his Honour said that in principle specific performance did not depend on a prior breach; and that all that was required was sufficient risk of non-compliance to justify a decree. His Honour drew analogies with other forms of equitable relief: the guarantor's right of indemnity against the principal debtor (described variously as an instance of subrogation but elsewhere as the equity of exoneration).
At [85], his Honour considered that the analogy with exoneration and contribution in the present context was a close one; in each case, equitable relief being granted on a quia timet basis which did not depend on any liability existing at law. His Honour saw no reason in principle why specific performance should not be granted against the guarantor on the same basis.
Relevantly, in the context of the orders made in the present case, I note that, at [87], his Honour expressed the view that it could be confusing or perhaps incoherent to order both the purchaser and the guarantor to take title and register, saying that those obligations could not be carried out by more than one person and "at least in the usual case" they would be decreed against the purchaser alone (cf the orders made in the case from which the appeal is now brought).
In Baeg, Parker J in an ex tempore decision made orders granting specific performance against both the purchaser and the guarantor of a contract for the sale of land, applying the reasoning in Ryan, on the basis that the guarantor had contracted as principal. The relevant clause in that case provided that "this guarantee and indemnity is a principal obligation of the guarantor and is not collateral to any other obligation".
[9]
Grounds 1-3 of the appeal
Grounds 1-3 of the amended notice of appeal essentially raise the issue as to the proper construction of cl 60.2 (the guarantee clause) and I will consider them together. As the argument was put at the hearing of the appeal, it appears to be accepted that the resolution of these grounds will dispose of the appeal.
As noted earlier, there is no complaint made as to the primary judge's identification of the relevant principles to be applied in the construction of commercial contracts and, in particular, contracts of guarantee (see Second Judgment at [20]-[29]). Nor is there any dispute that the guarantee clauses in the respective sale contracts are to be construed against the settled background of conveyancing law, including the well-established principle that where completion obligations are simultaneous and interdependent, the purchase price does not become a debt due and payable until the vendor conveys title. The respondents accept that they cannot recover anything as a liquidated debt at this stage (see AT 12.4) because there is no presently accrued obligation on the part of the purchasers to pay the purchase price.
Rather, the nub of the respondents' contention is that cl 60.2 as a whole entitles them to recover from the guarantor all money which it was the purchasers' "obligation … to pay", notwithstanding that the money may not presently be recoverable as a debt due and payable by the purchasers. While eschewing a taxonomical analysis as such, the respondents argue that if the Moschi terminology is used then their construction would place the obligations of the guarantor as being of the "answer for" kind, i.e., that the guarantor is not simply liable for damages for breach of an obligation to "see to it" that the purchasers perform their obligation under the sale contract to pay the balance of the purchase price on settlement but is liable to perform the purchasers' obligations if they do not.
It is convenient to address first the respondents' contention as to the proper construction of the relevant guarantee clauses, since ultimately I do not accept that this is the proper construction of the clauses (and hence I do not summarise in detail the appellant's submissions). The respondents contend that the primary judge's conclusion is correct for the following reasons.
First, they say that it is impossible to reconcile the appellant's construction with the words of the clause, emphasising (as noted above) that the obligation to pay money encompasses financial obligations extending beyond debts due and payable (and contending that this is reinforced by the reference to a "liquidated debt" in the second sentence). They argue that the expressed ability immediately to recover the money from the guarantor "as a liquidated debt" makes it clear that (notwithstanding the general law position expounded in Sunbird) the parties have agreed that the purchase price can be recovered from the guarantor if the purchaser does not perform its obligations on settlement. They say that the "obligation ... to pay" the purchase price is an obligation to pay money even if that amount does not, at common law, become a debt due until conveyance of title.
Second, the respondents argue that the appellant's construction results in a commercially absurd construction of cl 60.3 (which imposes a liability as "principal"). The respondents submit that cl 60.3, which defines that principal liability by reference to the guarantor's obligations under cl 60.2, necessarily assumes that the appellant's liability under cl 60.2 is not confined to one in damages but includes a liability to perform if the purchasers do not. The respondents maintain that there is no other available sense in which the guarantor could be said to bound by way of "principal obligation" (referring to the discussion of principal debtor clauses in McGuinness at [7(iv)], [66] (per Patten LJ, with whom Moses and Ward LLJ agreed) and Ryan at [73], [77] (per Parker J)).
The respondents say that, on the appellant's construction of cl 60.2, cl 60.3 could never require him to pay the purchase price at completion because, on the appellant's construction, he never has that obligation under cl 60.2. It is submitted that such a result would self-evidently defeat the main point of cl 60.3 and would be inconsistent with the appellant being liable under a "principal obligation". The respondents say that it would also mean that, if for whatever reason the purchasers are not bound, the respondents could never get the benefit of performance of the contracts (which they maintain is a commercially absurd outcome).
Third, the respondents say that the appellant's construction would flout common sense because, if that construction is correct, then to obtain the purchase price in the event the purchaser did not perform, the respondents would need to convey title without receiving payment (i.e., they would need to perform the contract in a way not contemplated by the parties); an outcome that they argue would be bizarre outcome and one not dictated by the words of the contract.
Fourth, the respondents argue that the appellant's construction is not supported by the surrounding context (pointing to the fact that the guarantee was given by the sole director and shareholder of companies with share capital of $20 and that cl 60.1 records that the vendors entered into the contract with the purchasers at the request of the appellant and in consideration of the giving of the guarantee and indemnity). The respondents argue that their construction (which they say gives effect to the ordinary meaning of the words in cl 60.2) makes commercial sense in that the (then) sole director and shareholder of corporate purchasers without assets is undertaking to put them in funds to complete and also to complete if they do not (and, pursuant to cl 60.3, to perform as principal if the purchasers are not bound).
The appellant, on the other hand, maintains that the language of cl 60.2 is similar to that considered in Sunbird, relying on that decision as authority for the following propositions: first, that there is a working dichotomy between two types of guarantees (a guarantee for payment of a debt or sum of money which has accrued due and a guarantee for the performance of some other obligation); and, second, that payment and conveyance of property are dependent and concurrent obligations. The respondents accept the latter; what they do not accept is that the first sentence of the guarantee in this case is a "see to it" provision, breach of which only sounds in damages.
[10]
Determination
In my opinion, her Honour erred in concluding (at [37] and repeated at [43]) that the first sentence of cl 60.2 imposes a distinct and separate obligation on the guarantor to perform the obligation to pay the balance of the purchase price and moneys due on completion if the purchaser did not; i.e., in effect to assume an obligation as principal to pay the moneys due on completion (as opposed to having a liability in damages for breach of the guarantee to ensure that the purchasers performed their obligation to pay the money on completion).
That is because the first sentence of cl 60.2 simply guarantees the prompt performance (by the purchasers) of their obligations under the sale contracts; it does not in terms impose an obligation on the guarantor as principal to step in and perform the purchasers' obligations itself. The second sentence in my opinion provides the mechanism by which, if the relevant obligation is one for the payment of money, the vendors may immediately recover that money (i.e., as a liquidated debt, without first enforcing any other right against the purchasers of any other person). While I accept (as the appellant submits) that the reference in the second sentence to recovery of the money as a "liquidated debt" is a contextual indicator that what is contemplated there is money in respect of which there is an accrued obligation to pay, I place more weight on the fact that the second sentence is clearly speaking of a subset of obligations under the sale contracts (insofar as it commences with the word "if"). The provision that the vendors may immediately recover the money as a liquidated debt without first enforcing rights against the purchasers or others has in my view the obvious purpose of excluding an argument by the guarantor that the vendors must exhaust those rights before proceeding under the guarantee.
This construction is consistent with Sunbird, a case where the relevant guarantee was in substance in the same terms. Although the respondents seek to distinguish Sunbird on the basis that it was not a suit for specific performance (but, rather, a claim in debt), it is important to recall the observation of Mason CJ that (in a case where there was an undischarged order for specific performance against the purchaser - which was the same in the present case) the vendor appellant was "faced with a daunting task in making good the submission that the respondent guarantors are liable under their joint and several guarantee to pay the balance of the purchase price and interest thereon, notwithstanding the absence of an accrued liability on the part of the purchaser to make the payment". The very same scenario confronted the respondents in the present case. Therefore, the fact that the availability of specific performance against the guarantor was not in issue in Sunbird does not reduce its significance to the present case. Nor, in my opinion, does the fact that Gaudron J placed reliance on cl 11 (which has no counterpart in the present contracts) assist the respondents. The more pertinent indicator is the lack of reference to the guarantee being a "principal" obligation compared with the indemnity clause, which expressly records that it is a principal obligation.
As already noted, it is here conceded that the purchasers' obligation to make the payments in question is interdependent on the vendors' simultaneous obligation to convey the property. It is accepted that there is no accrued liability on the part of the purchasers to pay the balance of the purchase price (simply an obligation to pay that amount "on settlement"). In my opinion, read in its ordinary meaning, the first sentence of cl 60.2 is a promise to ensure prompt performance by the purchasers (not the assumption of a distinct obligation by the guarantor to step into the purchasers' shoes and pay the purchase price if they do not).
I do not see that the second sentence of cl 60.2 mandates a different reading of the guarantee obligation. As noted above, I consider that it is no more than a mechanism provision.
Ryan and Baeg are distinguishable because in both cases the guarantor expressly assumed obligations as principal. As noted earlier, this was the critical factor in his Honour's conclusion in Ryan that the guarantor had co-ordinate liability with the purchaser (as his Honour himself made clear in Baeg at [8]). The respondents themselves have pointed to the primary judge's clear finding that the guarantor was not liable as a principal (see [35] of the Second Judgment).
I do not accept that the construction for which Mr Toma contends produces a bizarre or uncommercial outcome (as the respondents suggest); rather, what would seem to me to be an uncommercial outcome is one in which a guarantor who has not agreed to take a conveyance of property (or to assume the obligations of the principal to do so) is now ordered to do so (as Mr Toma has here been ordered to do, he being one of the "defendants" referred to collectively in the order for specific performance). The suggestion that one can simply assume that the conveyances would be to the respective named purchasers (see AT 25) ignores the wording of the relevant order (order 2).
The fact that the purchaser companies were special purpose vehicles with limited share capital no doubt explains why it would be in the interests of the vendors to impose on the guarantor an obligation as principal to pay the purchase price if the purchasers failed to do so. But cl 60.2 neither expressly nor, in my opinion, impliedly imposes such an obligation. The fact that the vendors are left with a remedy (in damages) which may be less palatable to them is not to the point. (While the respondents argue in their submissions that there is nothing to suggest that a liability to them in damages would be a worse outcome for Mr Toma than having to pay the purchase price, it may be noted that the respondents have apparently chosen not to press for a damages remedy, which suggests that they may well consider it a better outcome for them to be paid the purchase price without any issue arising as to mitigation of loss or the like.)
Nor does the fact that Mr Toma was, at the time of exchange of contracts, in control of the purchaser companies assist the vendors. True it is that this might have made Mr Toma more willing to assume a principal obligation to pay the purchase price if the purchasers did not do so (i.e., the converse of the scenario posited by Mason CJ in Sunbird), but that does not warrant reading into cl 60.2 a principal obligation on the part of the guarantor that is not otherwise there expressed.
Thus, I consider that breach of the obligation under the guarantee of the prompt performance of, relevantly, the obligation to pay the balance of the purchase price and other moneys due on completion sounds in a remedy for damages, not an order for specific performance against the guarantor for payment of the purchase price.
In oral argument there was some discussion as to what work the guarantee could do (in terms of an obligation to pay money) prior to completion of the contract if, as Sunbird confirms, the purchase price is only recoverable as a debt if there has been completion of the sale contract (see AT 11- AT 12). The answer to this is that it may well have had work to do in the present case in relation to the deposit due under the Sale of Land Contracts, which provided for the payment of the deposit in tranches (although the respondents did not concede this because the deposit was payable to the selling agent not the vendors under the Sale of Land Contracts (cf the deposit paid under the Sale of Business Contracts)). In any event, any problem of this kind does not overcome the difficulty that cl 60.2 in its terms does not impose a separate and distinct obligation on the guarantor to pay the purchase moneys if the purchasers do not.
Accordingly, I consider that Grounds 1-3 are made good.
[11]
Ground 4
The conclusion reached above in effect disposes of the challenge to the grant of quia timet relief (which is the basis of Ground 4 of the appeal). I have concluded that, on the proper construction of cl 60.2, Mr Toma is not obliged to step into the shoes of the purchasers and perform their obligation to pay the purchase price. Therefore, the basis for quia timet relief does not arise.
The respondents seem to accept that it is possible that the relief granted is not quia timet in the strict sense because there has already been a breach of contract by the purchasers (and a failure to comply with the Court's orders) but they say that, if so, then this ground of appeal is irrelevant. However, they say that in another sense, the orders are quia timet because there remains the possibility (seemingly only theoretical) that the purchasers will pay the purchase price. The respondents argue that whatever the correct terminology, no House v King (1936) 55 CLR 499; [1936] HCA 40 error has been demonstrated in the primary judge's exercise of discretion in the grant of relief in this case.
It is not necessary to consider this issue in further detail (so, for example, I do not enter into the debate as to whether it was incorrect to say that quia timet relief does not depend upon any liability existing at law - as stated at [41] of the Second Judgment). Nor is it necessary to consider whether the equitable remedies of exoneration and contribution are relevantly analogous to the remedy of specific performance (a proposition with which the appellant cavils).
As to the appropriateness of the orders made for specific performance, I simply note that the potential for confusion and incoherence recognised by Parker J in Ryan, if orders are made for both the purchaser and the guarantor to complete the conveyance and take title to the property, is made evident by Order 2 in the present case.
[12]
Notice of Contention
As to the respondents' Notice of Contention, this is not made good. The guarantor's obligation was to ensure that the purchasers perform their obligations. As Mr Toma contends, breach of that obligation would sound in damages, not in what amounts to a mandatory injunction that he pay the whole of the purchase price. I have already indicated that the notice of contention does not make clear the manner and terms on which the respondents suggest this should occur.
[13]
Orders
For the reasons above, I propose that the appeal be allowed with costs and that the following orders be made:
1. Appeal allowed with costs.
2. Set aside the orders made by Rees J on 9 August 2024 and in lieu thereof order that the claim for specific performance as against the fifth defendant be dismissed with costs and dispense with compliance as to the rules of service.
3. Direct the appellant to file the amended notice of appeal within 7 days.
4. Dispense with the filing requirement for the respondents' notice of contention.
GLEESON JA: I agree with Ward P and also with the reasons of the Chief Justice.
I have the following brief comments concerning the respondents' submission that the appellant's construction of cl 60.2 results in a commercially absurd construction of the indemnity in cl 60.3. It is said that although the indemnity is a principal obligation, the respondents could never require him to pay the purchase price at completion because, on the appellant's construction, he never has that obligation under cl 60.2.
The flaw in the respondents' submission is twofold. First, it asks the wrong question. Rather than directing attention to the language of the guarantee and indemnity, the question directs attention to the commercial outcome which the respondents seek prior to termination of the contract for breach by the purchaser. Second, it ignored the nature and scope to the indemnity in cl 60.3.
The indemnity is only engaged if the purchaser is not bound by some or all of its obligations under the relevant contracts. In that event, the guarantor's secondary obligation under cl 60.2 is not engaged. In that limited circumstance the indemnity operates as a principal obligation by reference to its specified scope, namely, the putative obligation of the guarantor, if the guarantee had been engaged. The "amount" of the indemnity under cl 60.3 is measured by reference to the "amount" of the guarantor's obligation to the vendor under cl 60.2, if the purchaser had been bound by the relevant obligation(s) under the contract which the purchaser has failed to perform. The putative guaranteed obligation under cl 60.2 might give rise to a liability for a liquidated sum or damages, depending on the circumstances.
Thus, if the guarantor's putative obligation concerned the purchaser's failure to perform its obligation to pay the deposit to the stakeholder on exchange, because, for example the purchaser's cheque was dishonored, the effect of special condition 65 which provides for the release of the deposit to the vendor immediately on the date of the contract, is that the payment to the agent is equivalent to payment to and for the vendor, and therefore the unpaid deposit is recoverable by the vendor as principal and not by the agent, to whom it was payable on account of the vendor alone. That "amount" would be measured as a liquidated sum: Coast Securities No 9 Pty Ltd v Alabac Pty Ltd [1984] 2 Qd R 25 at 27-28 cf Socratous v Koo (1993) 6 BPR 97,448 at 13,228 (McLelland CJ in Eq) where the deposit was payable to the stakeholder, but the vendor had no right to recover the unpaid instalment of the deposit prior to completion, but could claim damages after termination of the contract.
By contrast, if the guarantor's putative obligation concerned the purchaser's failure to perform its obligation to complete the contract, the guarantor would be liable to indemnify the vendor by paying an "amount" to the vendor measured by reference to the amount that would have been payable by the guarantor under cl 60.2 for the purchaser's failure to perform. That "amount" would be measured as damages for breach of contract following the vendor's termination of the contract. That the guarantor has no obligation under cl 60.2 to pay the purchase price at completion reflects the fact that the vendor has no accrued right prior to completion to payment of the balance of the purchase price by the purchaser, as this payment obligation is conditional on the vendor's performance of its obligation to transfer of title.
Contrary to the respondents' submissions, the construction of cl 60.2 adopted by Ward P with which I agree, does not result in a commercially absurd construction of cl 60.3.
[14]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 18 December 2024
Parties
Applicant/Plaintiff:
Toma
Respondent/Defendant:
Taylor Square TT Pty Ltd
Cases Cited (22)
[This headnote is not to be read as part of the judgment]
Taylor Square TT Pty Ltd (Vendor) entered into contracts for the sale of each of the Kinselas Hotel and the Courthouse Hotel, and their underlying businesses and assets (Contracts), with four special purpose vehicles (Purchasers). At the time of exchange, Mr Mark Toma was the sole director and shareholder of each of the Purchasers. Mr Toma executed the Contracts both in his capacity as a director of the Purchasers, and in his individual capacity as guarantor.
Each of the Contracts contained a guarantee in substantially the same terms (cl 60.2) in which the Guarantor guaranteed to the Vendor prompt performance of all of the obligations of the Purchaser contained or implied in the Contract and provided that if the obligation was to pay money, the Vendor may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person.
The Purchasers failed to complete the Contracts. The Vendor then sought an order for specific performance against both the Purchasers and Mr Toma (as guarantor). The primary judge initially declined to order specific performance against Mr Toma but ordered specific performance against the Purchasers. When the Purchasers failed to comply with that order, the Vendor renewed its application for an order for specific performance against Mr Toma.
The primary judge construed the guarantee as one by which Mr Toma assumed a distinct obligation to render performance if the Purchasers did not. Accordingly, the order sought for specific performance was granted. Mr Toma subsequently appealed this construction of the guarantee.
The Court held (Ward P, Bell CJ and Gleeson JA agreeing), allowing the appeal with costs:
(1) Clause 60.2 does not in its terms impose an obligation on the guarantor as principal to step in and perform the Purchasers' obligations. The first sentence of the clause simply guarantees the prompt performance of the Contracts by the Purchasers, and the second sentence serves a mechanistic function, insofar as it provides for a method by which the Vendors may recover that money. The breach of the guarantee sounds in damages: [100]-[101] (Ward P); [3]-[15] (Bell CJ); [118]-[124] (Gleeson JA).
Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 considered and applied.
Ryan v UPG 322 Pty Ltd [2023] NSWSC 1293 and Baeg v Wink Singh Pty Limited [2024] NSWSC 589 distinguished.
(2) The obligation to pay moneys under a contract for the sale of land arises only at the point of, and simultaneously with, conveyance of the properties: [103] (Ward P); [123] (Gleeson JA).
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457; [1933] HCA 25 applied.
JUDGMENT
BELL CJ: I have had the benefit of reviewing in draft the separate reasons for judgment of the President and Gleeson JA. What follows presupposes a familiarity with the President's reasons and her Honour's exposition of the background to the transaction, the key clauses of the contracts in question, the reasoning in the primary judgment, the arguments of the parties and leading authorities in the area.
For the purposes of these short reasons, it is sufficient to reproduce clauses 60.2 and 60.3 which appeared in each of the four contracts under consideration. They provided as follows:
60.2 Guarantee
The Guarantor guarantees to the Vendor prompt performance of all of the obligations of the Purchaser contained or implied in this Contract. If the obligation is to pay money, the vendor may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person.
60.3 Indemnity
If the Purchaser is not bound by some or all of its obligations under this Contract, the Guarantor agrees, by way of indemnity and principal obligation, to pay to the vendor the amount which would have been payable by the Guarantor to the Vendor under the guarantee in clause 60.2 had the Purchaser been bound.
As with the President and Gleeson JA, I am respectfully unable to agree with the primary judge's conclusion that "the first sentence of cl 60.2 is a distinct and separate promise to perform the principal obligation if the purchasers did not": [2024] NSWSC 987 at [37].
An undertaking by Party A to guarantee the performance of Party B's obligation(s) is neither in form nor substance nor expressly nor impliedly an undertaking by Party A to perform Party B's obligation(s). Nor is it an assumption of Party A's obligations. The Guarantor's obligation under a clause expressed in terms of the first sentence of cl 60.2 is of a different nature to the obligations of the Purchasers although the obligation of the Guarantor is in relation to the Purchasers' obligations.
The failure by Party A in its undertaking will prima facie expose it to an action for damages. As the President has explained, so much emerges with clarity from the judgments of both Mason CJ and Gaudron J in Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245; [1988] HCA 11 (Sunbird). Any assessment of damages would necessarily need to take into account that the property in question had not been conveyed to the purchaser as, ex hypothesi, settlement would not have taken place. Complex questions of causation, valuation and mitigation may arise.
That cl 60.2 of the respective Sale of Land and Sale of Business Contracts was not intended to impose a principal obligation on the Guarantor is also, on its face, reinforced by cl 60.3 which does provide for the Guarantor to fall under a principal obligation but only in circumstances where the Purchaser "is not bound by some or all of its obligations under this Contract". That is curious language. The conception of a party not being "bound" by some or all of its "obligations" under a contract is difficult as the very nature of a contractual obligation is that a party to that contract is bound by it. Nevertheless, the fact that cl 60.3 uses the language of principal obligation highlights the absence of such language in cl 60.2 and yet the effect of the Vendor's argument and the primary judge's decision is to accommodate a suit for specific performance against the Guarantor of the Purchasers' principal obligations.
The fact that I disagree with the primary judge's conclusion that the "first sentence of cl 60.2 is a distinct and separate promise to perform the principal obligation if the purchasers did not" is not necessarily the end of the matter, however, as the second sentence of cl 60.2, upon which the Vendor placed heavy reliance, provides that:
"If the obligation is to pay money, the vendor may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person."
Sunbird recognises that general rules in relation to the operation of guarantees may be affected by the language employed in the context of the contract as a whole. So, too, Dixon J recognised in McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476; [1933] HCA 25 (McDonald) that the general rule, namely that a vendor of land is not entitled to sue for the purchase price payable under a contract that has not been completed by conveyance, may be excluded by a contrary intention expressed in the contract.
One of the obligations of the Purchaser referred to in the first sentence of cl 60.2 is the obligation to complete on the date fixed for completion or as modified by a notice to complete. Indeed, this obligation is central to each and all of the contracts in question, and there would need to be strong reasons not to read the reference to "the obligations" in cl 60.2 as including the obligation to complete, even if the contracts contained other obligations to pay money.
This is because the first sentence of the clause refers to "all of the obligations of the Purchaser contained or implied in this Contract". The second sentence of cl 60.2 is referring to one kind of the Purchaser's obligations, namely the obligation to "pay money". On a natural reading of the language of cl 60.2, that obligation should be understood to include the obligation to pay money for the purposes of completing the purchase of the properties and businesses concerned, in exchange for a conveyance of title. The fact that the obligation may be conditional upon or interdependent with the Vendor's obligation to transfer title does not make the Purchasers' obligation to pay money any less of an obligation provided that the Vendor is ready, willing and able to perform its side of the bargain.
The Purchasers were under an obligation to pay money to the Vendor and had been called upon and indeed ordered by the primary judge specifically to perform the contracts, requiring completion at 2pm on 1 July 2024: see Taylor Square TT Pty Ltd v Kinselas Pty Ltd [2024] NSWSC 799. Necessarily implicit in her Honour's decision was that the Vendor was ready, willing and able to convey title to the Purchasers.
Mr Scruby SC, who appeared on behalf of the Vendor, contended that, by the second sentence of cl 60.2, the Vendor was given an important additional right to the right to sue for damages for breach of the contract of guarantee. That was a right "immediately [to] recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person." But the action pursued was not one for the recovery of a liquidated debt.
It was submitted that the interpretation favoured by the primary judge gave the second sentence of cl 60.2 work to do and that the contrary interpretation largely if not wholly robbed the second sentence of cl 60.2 of work to do, at least in the Contracts for the Sale of Land. It was also submitted that cl 60.2 was not merely a mechanical provision relating to accrued debts and that the commercial context of the transactions, where the Guarantor was the sole director and shareholder of the special purpose purchaser companies at the time of execution of the sale contracts, reinforced the Vendor's interpretation in the same way that it played an important part in the reasoning of the primary judge: see [2024] NSWSC 987 at [30].
Although I have found the question of interpretation to be finely balanced, I do not consider that the second sentence of cl 60.2 goes as far as the Vendor requires, and as the primary judge held, so as to subject the Guarantor to the Purchasers' principal obligation to complete the respective purchases.
The second sentence of cl 60.2 proceeds on the basis that the Purchaser has not paid money it was required to pay. The right immediately to recover money as a liquidated debt is not stated to be conditional upon a conveyance of title being simultaneously effected, and the action pursued was not one to recover a liquidated debt at all, as Mr Scruby accepted in argument. The reference to the "obligation to pay money" in cl 60.2 is, on its proper construction, an obligation to pay money simpliciter.
The second sentence of cl 60.2 did not operate to generate an obligation on the Guarantor to perform the Purchasers' obligations under the contracts in question but rather conferred an entitlement on the Vendor to enforce an accrued monetary obligation by way of a claim in debt and to do so without first commencing proceedings or enforcing any other right against the Purchaser or any other person. The second sentence of cl 60.2 was thus essentially mechanical in its operation and effect.
Were the Purchasers' interpretation to be favoured, the fact that this entitlement arose "immediately" upon the Purchasers' non-performance would sever the contractual interdependence between completion and transfer of title cf. McDonald. It would leave unexplained the mechanism by which the transfer of title was to be effected. Indeed, this uncertainty was reflected in the nature of the orders insofar as they referred to a conveyance of the properties to "the Defendants". In this regard, I agree with the President's observations at [39] and [72]-[73].
For these reasons which accord with those of the President and Gleeson JA, I would allow the appeal with costs.
WARD P: This appeal raises a relatively narrow issue as to the proper construction of guarantees given by the appellant (Mr Mark Toma) in contracts for the sale of land in respect of two properties in Darlinghurst (the Kinselas Hotel and the Courthouse Hotel, referred to collectively as the Properties) and corresponding guarantees given by Mr Toma in contracts for the sale of the businesses conducted at the Properties.
The purchasers under those contracts (special purpose vehicles of which Mr Toma, at the time of exchange of the contracts, was the sole director and shareholder) failed to complete the contracts and failed to comply with orders made by the primary judge for the specific performance of those contracts (Taylor Square TT Pty Ltd v Kinselas Pty Ltd [2024] NSWSC 799) (the First Judgment). The primary judge subsequently ordered that Mr Toma (as guarantor) specifically perform those contracts and carry them into execution by paying the balance of the purchase price due on completion (and interest in accordance with the contracts) (Taylor Square TT Pty Ltd v Kinselas Pty Ltd (No 2) [2024] NSWSC 987) (the Second Judgment). Mr Toma challenges the making of the orders for specific performance. Mr Toma emphasises that he does not contend that there is no remedy available against him under the guarantees in question; simply that it is not the remedy of specific performance (see AT 2).
For the reasons below, I have concluded that the appeal should be allowed and the orders here challenged should be set aside.