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ING Bank (Australia) Ltd v Stafford QSC 289
SUPREME COURT OF QUEENSLAND
ING Bank (Australia) Ltd v Stafford & Ors; Leagrove Pty Ltd & Anor v ING Bank (Australia) Ltd  QSC 289
In BS 1790 of 2009:
ING BANK (AUSTRALIA) LTD
In BS 10187 of 2009:
LEAGROVE PTY LTD
BS 1790 of 2009
BS 10187 of 2009
Supreme Court of Queensland
6 August 2010
21 December 2009
PROCEDURE – SUPREME COURT PROCEDURE – QUEENSLAND – PROCEDURE UNDER RULES OF COURT – SUMMARY JUDGMENT – where the applicant in each proceeding has applied for summary judgment – where the respondents to the strike out applications are sued as guarantors of a loan made by the applicant to the company – where the company has defaulted in repayment of the principal – where the issue is whether the respondents are liable to pay the applicant lender or indemnify the lender in respect of the outstanding principal pursuant to a deed of guarantee and indemnity executed by the respondents – where the respondents raise a number of contentions to impugn the guarantees – where the applicant lender argues that these contentions have no real prospect of success and that there is no need for trials in the proceedings – whether there is no real prospect of the respondents succeeding – whether the proceedings ought to be struck out
Property Law Act 1974 (Qld), ss 14, 50
Uniform Civil Procedure Rules 1999 (Qld), rr 292, 293
Agar v Hyde (2000) 201 CLR 552, cited
Bofinger v Kingsway Group Ltd (2009) 239 CLR 269, cited
Bolton Properties Pty Ltd v JK Investments (Australia) Pty Ltd  QCA 135, cited
BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266, cited
Elders Trustee & Executivor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193, cited
Equuscorp Pty Ltd v Glengallen Investments Pty Ltd (2004) 218 CLR 471, cited
Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773, cited
Glennon v Commissioner of Taxation (Cth) (1972) 127 CLR 503, cited
Northern Banking Co v Newman & Colton (1927) IR 520, cited
Re Interwest Hotels Pty Ltd (in liq) (1993-1994) 12 ACSR 78, cited
Re Kwan; ex parte Hastings Deering (Solomon Islands) Ltd (1987) 15 FCR 264, cited
Suncorp Insurance and Finance v Commissioner of Stamp Duties (Qld)  2 Qd R 285, cited
Williams v Frayne (1937) 58 CLR 710, cited
AJH Morris, QC with VG Brennan for the applicant
L Harrison, QC with A Musgrave for the respondents
McCullough Robertson Lawyers for the applicant
Adamson Bernays Kyle & Jones Solicitors for the respondents
- ING Bank (Australia) Ltd (“ING”), which is the plaintiff in proceeding BS 1790 of 2009 and the defendant in proceeding BS 10187 of 2009, has applied for summary judgment in each action.
Proceeding BS 1790 of 2009
- The defendants to this proceeding are Brian James Stafford (“Brian”), Christopher Michael Stafford (“Christopher”), Mark Francis Stafford (“Mark”) and Leagrove Pty Ltd as trustee for the Stafford Investment Trust (“Leagrove as trustee”). (Where appropriate, I will refer to Brian, Christopher and Mark collectively as “the Staffords”.) They are sued as guarantors of a loan made by ING to Leagrove Pty Ltd (“the Company”).
- It is not in issue that the Company has defaulted in repayment of the principal advanced by ING to the Company, being a sum in excess of $8,000,000. As will be explained below, the issues are whether the defendants to this proceeding are liable to pay ING, or indemnify ING in respect of, the outstanding principal pursuant to a deed of guarantee and indemnity executed by Brian, Christopher and Mark on 30 October 2007 and a deed of guarantee and indemnity executed by Leagrove as trustee on 30 October 2007.
Proceeding BS 10187 of 2009
- By this proceeding, the Company and Mark have sued ING seeking, primarily, a declaration that there are no monies secured by mortgages held by ING over properties owned by the Company and Mark respectively and a declaration to support caveats lodged by each of the Company and Mark over the land under those mortgages.
- By a letter of offer dated 29 August 2005, ING offered to lend $7,250,000 to the Company. This letter of offer specified the Company as the “Borrower” and each of Brian, Christopher and Mark as “Guarantors”. The term of the loan offered was two years. The letter of offer specified the Security to be provided as follows:
Settlement is conditional upon the following security being provided in form and substance acceptable to ING. If anything relating to the security or anything else occurs which in ING’s opinion makes settlement undesirable, ING may withdraw from the proposed transaction.
- Registered first mortgage from third party mortgagor Leagrove Pty Limited as trustee for the Stafford Investment Trust over englobo parcels of land described as Lots 156 and 157 on RP 79932, Lot 209 on RP 902366 and Lot 210 on RP 801018 located on the corner of Crescent and Broadwater Avenues Hope Island, Gold Coast.
- Registered third party, first mortgage from Mark Stafford over englobo parcel of land described as Lot 211 on RP 901018 located at 35 Crescent Avenue Hope Island, Gold Coast.
- Registered third party, first mortgage from Mark Stafford over englobo parcel of land located at 39 Crescent Avenue Hope Island, Gold Coast.
- Registered first fixed and floating charge over assets and undertakings of Leagrove Pty Limited in its own right and as trustee for the Stafford Investment Trust.
- Joint and Several guarantees of Brian James Stafford, Christopher Michael Stafford, Mark Francis Stafford and Leagrove Pty Limited as trustee for the Stafford Investment Trust.”
- This offer was accepted by the Company, Brian, Christopher and Mark, and the loan was made.
- When the term of that loan was due to expire, ING sent the Company a letter of offer dated 14 September 2007. That letter commenced:
“We refer to your existing term loan of $7,250,000 and your recent application to extend the facility for a further two years, increase the facility to $8,250,000 to allow for interest capitalisation during the extended term of the loan and to provide $250,000 in equity back to the Borrower to assist with ongoing costs in regards the development approvals being sought for the security property.
ING Bank (Australia) Limited ABN 24 000 893 292 (“ING”) is pleased to vary the loan on the following terms and conditions.
This letter of offer is to fully supersedes (sic) ING’s letter of offer to the Borrower dated 29 August 2005.”
- It is common ground between the parties that a number of handwritten amendments were made to this letter of offer before it was accepted. Including those handwritten amendments, the letter of offer, which as I have said was addressed to the Company, provided, inter alia, as follows:
“Borrower:Leagrove Pty Ltd ACN 103 669 405
Guarantors:Brian James Stafford
Christopher Michael Stafford
Mark Francis Stafford
Leagrove Pty Ltd as trustee for the Stafford Investment Trust
Loan Amount:$8,250,000 (this represents an increase of $1,000,000).
The Loan Amount will be allocated as follows:
|Existing loan balance||$6,456,000|
|Capitalisation of interest||$1,544,000|
|Future equity requirements||$ 250,000|
Term:The loan must be repaid in full 24 months with the loan expiring on 31 August 2009.
Security:The proposed loan variation is conditional upon the following security being provided in form and substance acceptable to ING. If anything relating to the security or anything else occurs which in ING’s opinion makes the loan variation undesirable, ING may withdraw from the proposed transaction.
1.Registered first mortgage from Leagrove Pty Ltd as trustee for the Stafford Investment Trust over englobo parcels of land described as Lots 156 and 157 on RP 79932, Lot 209 on RP 902366 and Lot 210 on RP 901018 situated at 41 and 49 Crescent Avenue and 11 and 17 Broadwater Avenue Hope Island, Gold Coast.
2.Registered third party, first mortgage from Mark Stafford over englobo parcel of land described as Lot 211 on RP 901019 located at 35 Crescent Avenue Hope Island, Gold Coast.
3.Registered first fixed and floating charge over assets and undertakings of Leagrove Pty Ltd.
4.Code of Banking Practice Compliant joint & several guarantees of;
- Brian James Stafford;
- Christopher Michael Stafford;
- Mark Francis Stafford.
- Unlimited guarantee & indemnity given by Leagrove Pty Ltd as trustee for the Stafford Investment Trust.”
- The acceptance counterpart of this letter of offer was executed by each of the Company, Brian, Christopher and Mark on 28 September 2007.
- On 30 October 2007, Brian, Christopher and Mark executed a document entitled “Guarantee and Indemnity”, in which each of them was described as “Guarantor” and ING as “Financier”. The term “Debtor” was defined to mean the Company. “Guaranteed Money” was defined as follows:
“means all amounts which the Debtor owes to the Financier at any time, including:
(a)all amounts which at any time the Financier has advanced or paid, or has become liable to advance or pay, for any reason:
(i)to or on behalf of the Debtor; or
(ii)at the express or implied request of the Debtor; or
(iii)because of any act or omission on the Financier’s part made at the express or implied request of the Debtor; and
(b)all amounts for which at that time the Debtor is or may become actually or contingently liable to the Financier for any reason, including all amounts for which the Debtor is or may become liable to the Financier about any orders, drafts, cheques, promissory notes, bills of exchange, letters of credit, Guarantees, bonds and other instruments or engagements (whether negotiable or not) which:
(i)have been drawn, issued, accepted, endorsed, discounted or paid by the Financier; or
(ii)are held by the Financier as a result of any transaction entered into by the Financier for, or on behalf of, or at the express or implied request of the Debtor; and
(c)all amounts which at that time are owing and unpaid, or owing but not presently payable, or owing upon a contingency, by the Debtor to the Financier for any reason; and
(d)all amounts which at that time the Financier is entitled to recover or claim from the Debtor for any reason (including any assignment, transfer or disposition by any person to the Financier of any property); and
(e)all amounts which at that time it is reasonably foreseeable or at some future time falls into any of the descriptions in (a), (b), (c) or (d) above applied as at that future time; and
(f)all amounts which at that time the Debtor owes or is liable for, to anyone the Financier assigns the Financier’s rights and obligations because the assignee performs an agreement or exercises a right the Financier had before the time of the assignment,
as relates to the Facility.”
- Clauses 3 and 4 provided:
3.1Payment of Guaranteed Money
The Guarantor unconditionally and irrevocably guarantees to the Financier the Debtor’s punctual payment to the Financier of the Guaranteed Money.
The Guarantor agrees that if the Debtor does not pay the Guaranteed Money or any part of the Guaranteed money on or before the time it is due for payment, the Guarantor must immediately pay the Guaranteed Money (or part of the Guaranteed Money) to the Financier, whether or not the Financier has made demand on the Debtor.
If the provisions of the Code of Banking Practice apply to this document the Guarantor’s liability is limited in connection with the Facility plus all interest, legal costs, enforcement costs, fees and charges which the Debtor owes to the Financier at any time.
4.1Indemnity against loss
The Guarantor unconditionally and irrevocably indemnifies the Financier against all loss the Financier suffers as a result of the Guaranteed Money (or any part of the Guarantee Money) not being recoverable from or any liability to pay the Guaranteed Money not being enforceable against the Debtor, a Security Provider, a Guarantor or any of them because of:
(a)any legal limitation, disability or lack of capacity, power or authority effecting any of them personally or in the capacity in which they are purporting to act;
(b)any improper exercise of power or authority;
(c)an Insolvency Event occurring to any of them;
(d)any transactions relating to the Guaranteed Money (or any part of the Guaranteed Money) being legally invalid, subsequently invalidated, capable to being invalidated or unenforceable,
or by reason of any other thing and whether or not any of these things were or should be known to the Financier.
The Guarantor as a separate and additional liability under this Guarantee as a principal debtor agrees with the Financier to pay to the Financier on demand an amount equal to the amount of any loss.”
- Clause 5 contained the following provisions:
“5Preservation of financier’s rights
5.1Financier’s rights unaffected
The Financier’s rights and the Guarantor’s obligations and liabilities under this document are not affected by anything which might legally affect them including any of the following:
(a)the Financier or another person granting time or other indulgence to any Guarantor, the Debtor or a Security Provider;
(b)an Insolvency Event occurring to the Debtor, a Guarantor of a Security Provider;
(c)any transaction or arrangement that may take place between the Financier, the Debtor and a Security Provider, any Guarantor or any other person;
(d)any variation of a transaction, arrangement or agreement between the Financier, the Debtor and a Security Provider, any Guarantor or any other person;
(e)the Financier’s failure or neglect to recover by the realisation of any Collateral Security or otherwise any of the Guaranteed Money from any person;
(f)any lack of power on the Guarantor’s part to enter into this document either in the Guarantor’s own right or in the capacity in which the Guarantor is purporting to act;
(g)the Financier becoming a party to or being bound by any compromise, assignment of property, scheme of arrangement, composition of debts or scheme of reconstruction by or relating to the Debtor, any Guarantor or any Security Provider;
(h)the release, discharge, abandonment, loss, impairment, transfer of or other dealing with (either in whole or in part and whether with or without consideration) the Financier’s rights under this document or under any Collateral Security;
(i)the death of a Guarantor, the Debtor or other Security Provider;
(j)the obtaining of a judgement or order against the Debtor, any Guarantor or a Security Provider, or any other person; or
(k)the failure by any person intended or contemplated as a party to this document to properly execute this document (either at all or in a manner legally binding upon that person).
5.2Collateral securities unaffected
Nothing contained in or implied by this document operates or is interpreted to:
(a)discharge, release, postpone, merge or otherwise prejudice or affect any Collateral Security or right which the Financier may hold, receive or claim relating to the Guaranteed Money; or
(b)terminate the Financier’s rights under any bill of exchange, promissory note, Guarantee, acknowledgment of debt, agreement for Financial Accommodation or any other contract or negotiable instrument.”
- On 30 October 2007, Leagrove as trustee executed a similar “Guarantee and Indemnity” in favour of ING as Financier. “Debtor” was defined in that document to mean “Leagrove Pty Ltd ACN 103 669 405” (i.e. the Company). This document otherwise contains terms identical to those in the “Guarantee and Indemnity” executed by the Staffords.
- The relevant ING Bank officer swears that, after obtaining in September 2008 valuations of the properties over which mortgages had been taken, ING formed the view that there had been a material adverse change to the borrower’s position. It issued notices of demand dated 23 January 2009 to Mark, Brian, Christopher and Leagrove as trustee. On 18 February 2009, ING commenced proceeding BS 1790 of 2009. Regardless of the efficacy of ING’s assertion of a material adverse change to its security provision, it is, as I have already noted, not now in issue that the Company has defaulted in repayment of the principal.
- On 25 June 2009, Mark lodged a caveat over the land described as Lot 211 on RP 901019, County of Ward, Parish of Coomera. He lodged the caveat as registered proprietor of the land and as mortgagor holding the equity of redemption under the mortgage registered over the land to ING. The “grounds of claim” were stated in the caveat as follows:
“Which estate and interest the mortgagee intends to defeat as appears from the fact that the mortgagee has served a notice of exercise of power of sale on the caveator which power of sale has not arisen in that (a) no moneys are secured by the said mortgage; and (b) default has not occurred under the said mortgage; in each case for the reasons pleaded in the amended defence of the caveator and others in Supreme Court action 1790/09; so that any such sale is forbidden by section 84 of the Property Law Act 1974.”
- A caveat in similar terms was also, on the same day, lodged by Leagrove as trustee over its land which was mortgaged to ING (Lot 209 on RP 902366, Lot 210 on RP 901018, Lot 156 on SP 213469 and Lot 157 on SP 213469).
- For completeness, I should note that it appears to be common ground on the pleadings that this land registered in the name of Leagrove as trustee was encumbered by a first registered mortgage to the Public Trustee, that this mortgage was transferred to ING with the transfer of the mortgage being registered on 7 September 2005, and that, at the same time, a second mortgage expressly naming ING as mortgagee (Mortgage No 708948353) was registered over the land.
Impugning the guarantees
- Both in defending ING’s claim and in advancing the claim by the Company and Mark, the Company and the Staffords raise a number of contentions to impugn the guarantees executed on 30 October 2007. ING argues, however, that these contentions have no real, as opposed to fanciful, prospects of success, that there is no need for trials of these proceedings, and that ING should have summary judgment in each proceeding pursuant to UCPR r 292 and r 293 respectively.
- It is, therefore, necessary to examine the merits and arguability of those contentions.
- In respect of ING’s claim, counsel for the Company and the Staffords enumerated the relevant defences as follows:
“4.1ING’s failed to obtain the securities listed in the amended loan agreement on the faith of which the guarantors gave their guarantees;
4.2Accordingly, the guarantees never came into effect, or in the alternative, are discharged;
4.3The guarantee given by [the Company] is not, in any case, a valid guarantee; Leagrove as trustee is the same legal entity as [the Company] in its own right, and so cannot guarantee its own performance of its obligations as the principal debtor.”
- As to the other claim defended by ING, counsel for the Staffords and the Company submitted that ING’s application for summary judgment proceeds on the basis that it is entitled to enforce the security documentation, and invoked the same reasons as set out above for resisting an application.
Failing to obtain specified securities
- Counsel for the Company and the Staffords submitted that, contrary to the requirements of the loan variation agreement between the parties evidenced by the amended letter of 14 September 2007, the securities required by that agreement were not obtained in that:
(a)the joint and several guarantees given by the Staffords did not comply with the Code of Banking Practice, and
(b)the mortgage in favour of the Public Trustee was not given in favour of ING (though it was later assigned to ING) and was “not given in connection with the facility offered by the letter of 14 September 2007”.
- It was submitted that the failure of obtain the securities had the effect of discharging each of the sureties on the basis that they had not got what they had bargained for in return for giving the guarantees. Counsel referred me to Northern Banking Co v Newman & Colton, and to the judgment of Dixon J in Williams v Frayne, in which his Honour said:
“If the guarantee if given upon a condition, whether express or implied from the circumstances, that a specific security shall be obtained, completed, protected, maintained or preserved, any failure in the performance of the condition operates to discharge the surety and the discharge is complete. But otherwise the surety can complain only if the creditor sacrifices or impairs a security, or by his neglect or default allows it to be lost or diminished, and in that case the surety is entitled in equity to be credited with the deficiency in reduction of his liability. The cases are collected in the ninth chapter of Sir Sidney Rowlatt’s book, and there is an examination of some of them in the judgment of Hanna J. in Northern Banking Co. v. Newman & Colton.”
- The securities in question are listed in the agreement evidenced by the amended letter of 14 September 2007. That list of securities is prefaced by:
“The proposed loan variation is conditional upon the following security being provided in form and substance acceptable to ING. If anything relating to the security or anything else occurs which in ING’s opinion makes the loan variation undesirable, ING may withdraw from the proposed transaction.”
- Counsel for the Company and the Staffords submitted that this is a case in which a condition would be implied that ING would obtain, complete, maintain, protect or preserve each and all of the listed securities. I was referred in that regard to the judgment of Pincus J in Re Kwan; ex parte Hastings Deering (Solomon Islands) Ltd. In that case, a judgment debtor sought to set aside a bankruptcy notice by going behind a judgment which had been obtained against him on a guarantee he had given. The guarantee in that case was a simple guarantee, signed pursuant to an agreement the guarantor had negotiated on behalf of the principal debtor (a company in which he had an interest and of which he was a director) for the purchase of some equipment. The creditor in that case had made a written offer to sell the equipment on terms which included the provision of a bill of sale and guarantees from the principal debtor’s directors, including the judgment debtor. Pincus J adverted to the principle enunciated by Dixon J in Williams v Frayne and to a submission by counsel for the creditor that there was no evidence in that case from which one might imply a condition that the creditor would obtain, complete, protect, maintain or preserve a specific security, and said:
“On the evidence the case is one of a kind familiar in commercial life: the directors of a private company were asked to guarantee a company debt to support a substantial security taken over the company’s property, there being no express statement that the efficacy of the guarantee depended upon the creditors troubling to perfect the security. In such a situation, it is (in general) at least implicit that the creditor will take all reasonable steps to perfect the security. It would be contrary to the expectation of business people that the creditor, not having perfected the security given by the principal debtor, should be free to have recourse to the guarantors. In my opinion, here, where the guarantee was given on the basis of an express stipulation that there should be a bill of sale, there is such an implied condition as I have mentioned; the guarantee is therefore discharged for breach of that condition. It should be added, perhaps superfluously, that what is held here has nothing to do with instances in which the guarantee is so drawn as to exclude the use of such a defence by the guarantor, nor with a case in which the failure to perfect the security was not the fault of the credit.”
- Counsel for ING advanced the following arguments:
(a)The provision of the listed securities may have been a condition of the loan variation agreement evidenced by the amended letter of 14 September 2007, but it was not a condition of the deeds of guarantee and indemnity executed on 30 October 2007. It was submitted that those deeds speak for themselves and, not having been procured by fraud, mistake or misrepresentation, the guarantors cannot now be heard to say that they are not bound by the terms of the deeds;
(b) Properly construed, the term in this case only required that certain securities be provided to ING, and did not cast an obligation on ING to “obtain and maintain” the securities;
(c)The term concerning the provision of the securities was for the benefit of ING. It was entitled, if all the securities were not provided, to withdraw from the transaction. Even if it be the case that all of the listed securities were not provided, by advancing the further sum ING clearly exercised the option available to it of proceeding with the agreement. It also thereby confirmed that such securities as were provided were “in form and substance acceptable to ING”, that being the first condition stated in the preface;
(d)The terms of the deeds of guarantee and indemnity are not ambiguous such as to require recourse to the loan variation agreement to “read down” the express terms stated in the deeds;
(e)The terms of clause 5.1 of each of the deeds of guarantee and indemnity defeat the proposition that, even if ING failed to “obtain and maintain” any of the listed securities, this resulted in the discharge of the deeds;
(f)ING does, in fact, hold all of the listed securities, save that the deed of guarantee and indemnity executed by the Staffords has not complied with the Code of Banking Practice.
- As to the submissions concerning the failure to obtain all of the listed securities, I would make the following observations:
(a)The argument that the transfer to ING of the first registered mortgage held by the Public Trustee meant that the first of the listed securities was not provided to ING is, in my view, quite artificial and untenable. The transfer of the Public Trustee’s interest as registered mortgagee under that first registered mortgage yielded the outcome that ING held a first registered mortgage over the specified land. That is the substance of the security which was specified in the first item of the list of securities.
(b)ING concedes that the deed of guarantee and indemnity executed by the Staffords was not “Code of Banking Practice compliant” because it failed to deal with three matters, namely:
(i)it did not comply with clause 28.2 of the Code because it was neither limited to, or in respect of, a specific amount plus other liabilities described in the guarantee nor limited to the value of the specified security at the time of recovery;
(ii)it did not include a statement to the effect that the relevant provisions of the Code of Banking Practice applied to the guarantee;
(iii)it did not contain the warning prescribed by s 50 of the Uniform Consumer Credit Code directly above the place where the guarantors signed.
- Counsel for ING sought to downplay the significance of the non-compliance with the Code by submitting:
“(a)Foremost of our submissions is that, consistent with our submission above, the Staffords are bound by the obligations and incidents of the deed which they executed regardless of its ultimate form. This is especially so in circumstances where the Staffords’ execution was witnessed by a solicitor from whom it can be safely assumed they received appropriate and independent legal advice – or, at the very least, had the opportunity of doing so.
(b)Secondly as is evident from Mr Mark Stafford’s evidence (or lack of it), he did not rely upon the code of banking practice form of guarantee when he executed the Staffords deed of guarantee and indemnity. There is no evidence from the other two relevant defendants as to this point.
(c)Thirdly, the Staffords could show no prejudice. So, for example: they clearly had access to (if not, received) legal advice; as original signatories to the letter of offer they were clearly aware of the possible amount of their exposure in respect to a specific amount guaranteed; and, the simple failure to specifically provide that the Code applied to the guarantee would not occasion any conceivable prejudice.”
- As to those arguments, however, I would observe:
(a)This case is quite different from that considered by the High Court in Equuscorp Pty Ltd v Glengallen Investments Pty Ltd. In that case, the issue under consideration was whether the loan agreements between the parties were wholly oral, as contended for by the respondent, or wholly in writing, as the appellants submitted. There was evidence of conversations in terms different from those recorded in formal loan agreements executed between the parties. It was in that context that their Honours in the High Court said:
“32.It is, and always has been, common ground that each of the respondents executed a written loan agreement on 30 June 1989. The respondents alleged that the “operative agreement” was not contained in that writing. It was said that the relevant agreement was reached earlier and was wholly oral. Yet it was not said that the written agreement should be rectified. It was not said that a defence of non est factum was available. It was not said that the written agreement was executed by mistake, or that its execution was procured by misrepresentation as to its contents or effect. (The misrepresentation alleged was as to what had been said in the conversations, not what the document was or provided.)
33.The respondents each having executed a loan agreement, each is bound by it. Having executed the document, and not having been induced to do so by fraud, mistake, or misrepresentation, the respondents cannot now be heard to say that they are not bound by the agreement recorded in it. The parol evidence rule, the limited operation of the defence of non est factum and the development of the equitable remedy of rectification, all proceed from the premise that a party executing a written agreement is bound by it. Yet fundamental to the respondents’ case that the operative agreements between the parties were wholly oral, and reached earlier than the execution of the written agreements, was the proposition that the written agreements subsequently executed not only may be ignored, they must be. That is not so. Having executed the agreement, each respondent is bound by it unless able to rely on a defence of non est factum, or able to have it rectified. The respondents attempted neither.
34.There are reasons why the law adopts this position. First, it accords with the “general test of objectivity [that] is of pervasive influence in the law of contract”. The legal rights and obligations of the parties turn upon what their words and conduct would be reasonably understood to convey, not upon actual beliefs or intentions.” (citations omitted)
In the present case, the point made by the Staffords turns not on a construction of the terms of the deed of guarantee and indemnity they signed, but rather highlights the fact that, on any view, the form of deed of guarantee and indemnity did not conform with the terms of the loan variation agreement as evidenced by the amended letter of 14 September 2007. True it is that ING had the benefit of the provision that the securities be “in form and substance acceptable to ING”. But it is equally clear to me that the specification of “Code of Banking Practice compliant” guarantees was a matter for the benefit of the Staffords.
(b)The other matters raised in these arguments clearly go to assumed questions of fact, such as what legal advice was or was not received by the Staffords at the time of execution and on matters of alleged prejudice. These considerations are ill-suited to determination on a summary basis, bearing always in mind the necessity for a judge to exercise great care, and proceed with appropriate caution, having regard to the patent seriousness of a decision to summarily terminate a proceeding by effectively denying a party the opportunity to present its case at a trial “in the ordinary way, and after taking advantage of the usual interlocutory processes”.
- Returning, then, to the core submission advanced on behalf of the Staffords and the Company, it seems to me that there is a real question as to whether there was an implied obligation on ING to “obtain and maintain” the nominated securities, and particularly a “Code of Banking Practice compliant” form of guarantee from the Staffords, albeit that such securities might otherwise be “in form and substance acceptable to ING”.
- ING, the Company and the Staffords were in an existing creditor/debtor/guarantor relationship which was expressly superseded by the loan variation agreement evidenced by the amended letter of 14 September 2007. Counsel for ING argued that the asserted implication of the “obtain and maintain” condition fails to meet the well known tests for implication because it is not necessary to give business efficacy, it is not so obvious as to go without saying, and in any event is contrary to the express terms of the mortgages.
- I will deal with the last point shortly, but as to the first two, I am not presently persuaded to the view advanced by ING. With a sentiment similar to that expressed by Pincus J in Re Kwan (supra), I would tend to think that business people coming to this particular transaction, which specified that the securities to be provided would be compliant with the Code of Banking Practice, would consider that business efficacy did require that the guarantee in fact be compliant. Moreover, in practical terms, the guarantee was prepared by the bank. In that circumstance, it would go without saying that the guarantee would (or should) be compliant. The case was not argued before me on the basis that a lack of compliance with the Code of Banking Practice of itself vitiated the guarantee executed by the Staffords. It goes, however, to the question of whether there are real, as opposed to fanciful, prospects of the Staffords and the Company succeeding on the issue as to whether ING was required to “obtain and maintain” a compliant guarantee and whether ING’s failure to do so has the effect of discharging the securities. In any event, it seems to me that these matters go to the question of whether there ought be trials of these issues. Even if the application of the Code of Banking Practice is limited by the courts to being a guide to good banking practice, that would also fairly represent the expectation of business people entering into a significant financial transaction such as the present, and points both to the necessity for a full hearing on these issues and the undesirability of determining them on a summary basis.
- ING says, however, that the express terms of the deeds of guarantee and indemnity and the relevant mortgages exclude the implication of the “obtain and maintain” obligation on ING. ING pointed, in that regard, to cl 5.1 of the deeds of guarantee and indemnity and cl 22.1 of the mortgages. he terms of cl 5.1 are set out above. Clause 22.1 of the mortgages provided:
“22.1The rights of the Mortgagee and the obligations and liabilities of a Mortgagor under this mortgage are not affected by anything which might otherwise affect them at law or in equity including, without limitation, any of the following:
(a)the Mortgagee or another person granting time or other indulgence to any Mortgagor or Security Provider;
(c)any transaction or arrangement that may take place between the Mortgagee and a Security Provider, any Mortgagor or any other person;
(d)any variation of a transaction, arrangement or agreement between the Mortgagee and a Security Provider, any Mortgagor or any other person;
(e)the Mortgagee failing or neglecting to recover by the realisation of any Collateral Security or otherwise any of the Secured Money from any person;
(h)the release, discharge, abandonment, loss, impairment, transfer of or other dealing with (either in whole or in part and whether with or without consideration) any right of the Mortgagee under this mortgage or under any Collateral Security;”
- ING placed particular reliance on cl 5.1(h) and cl 22.1(h) respectively. But having regard to the nature of those clauses, it is clear that they are each to be construed contra proferentem ING. Any doubt about the apparent width of application of those clauses should be resolved in favour of the Staffords and the Company. It seems to me to be at least arguable that the present circumstance, in which ING failed to obtain a particular Collateral Security (viz the Code of Banking Practice compliant guarantee by the Staffords) is not caught by either cl 5.1(h) or cl 22.1(h). Both of those refer to other vitiating circumstances, i.e. “release, discharge, abandonment, loss, impairment of or other dealing with”, but not to a failure by ING to obtain a requisite Collateral Security. That point alone is sufficient to cast doubt on the applicability of those clauses or, to put it more accurately in accordance with the appropriate test, gives rise to a real, as distinct from fanciful, argument in opposition to ING’s claim.
- It follows from these considerations that I am of the opinion that, in respect of both proceeding BS 1790 of 2009 and proceeding BS 10187 of 2009, there is sufficient in the question whether ING was under an obligation to “obtain and maintain” a Code of Banking Practice compliant guarantee from the Staffords, and whether ING’s failure to obtain such a guarantee has the effect of discharging that and the other securities (including the mortgages granted by the Company and Mark), that it would be inappropriate to give summary judgment in either proceeding.
The guarantee executed by Leagrove as trustee
- Counsel for the Staffords and the Company submitted that the deed of guarantee and indemnity executed by Leagrove as trustee was not capable of operating as a valid guarantee because:
“The essence of a guarantee is that one person stands as surety for another. The drafter [of the deed] apparently thought that a company and a trustee were separate legal entities. Regardless, the form of the document is that Leagrove purports to guarantee its own performance.”
- Neither side referred me to an authority directly on point; nor, for that matter, have I been able to find one. Counsel for ING submitted, however, that even accepting the bare proposition that a borrower cannot guarantee its own borrowing, the guarantee given by Leagrove as trustee is maintainable for three reasons:
(a)The Company in its own right was the borrower; Leagrove as trustee was the guarantor. It is unremarkable that whilst the identity of the contracting party remains the same, the capacity in which it contracted with a third party means that any action against the person in the capacity of trustee entitles the third party to an indemnity from the trust assets in addition to, or to the exclusion of, the person’s personal assets. In that regard I was referred to the judgment of Gummow J in Elders Trustee & Executivor Co Ltd v EG Reeves Pty Ltd (1987) 78 ALR 193, in which his Honour said at 253:
“... the law does permit a trustee to contract with third parties on the basis that his personal liability is limited, for example, to the extent of his right to resort to and apply trust funds for the discharge of liabilities incurred by him in the authorised conduct of the trust. Nevertheless, third parties may, in a given case, not be prepared to deal with a trustee on such a basis and, in any event, clear words are necessary to achieve a result whereby what is prima facie the unlimited personal liability of a trustee is so qualified ...”
(b)The document in question operates as both a guarantee and an indemnity. By the indemnity, Leagrove as trustee undertook to indemnify ING not just for loss of the guaranteed money but also for other loss, including loss as a result of the guaranteed money not being recoverable from the Company as debtor.
(c)In any event, s 14 and s 50 of the Property Law Act 1974 allow a person, in one capacity, to contract with the same person in another capacity, such as a trustee, as trustee, contracting with itself in its own right. It follows that a party, acting in one capacity, can guarantee its own obligations incurred in another capacity.
- Counsel for the Staffords and the Company referred me to Glennon v Commissioner of Taxation (Cth) and Suncorp Insurance and Finance v Commissioner of Stamp Duties (Qld) to support the proposition that, as an assignment by an entity in its capacity as trustee to itself in its personal capacity is ineffective, so too a debtor is not able to guarantee his or her own performance.
- That submission, however, misses the point that the relevant covenant in a case such as the present is not between the guarantor and the debtor, but is the covenant by the guarantor with the creditor to pay monies owing by the debtor.
- It is not suggested that the borrower from ING was not the Company in its own right. The letter of 14 September 2007 was addressed to the Company. The “Borrower” specified in that letter was the Company. As Eames J said in Re Interwest Hotels Pty Ltd (in liq), there is no presumption that a company is acting in any capacity other than on its own behalf when it contracts with another party.
- But when one turns to the terms of the deed of guarantee and indemnity in this case, it seems that the document purports to be a guarantee by the Company in its own right and in its capacity as trustee. So much is clear from cl 14.1(a) of the deed, which provides:
“(a)If the Guarantor has entered into this document as trustee of the Trust, the Guarantor and its successors as trustee are liable under this document as trustee so that the assets of the Trust at any time are available to satisfy the Guarantor’s liabilities under this document. The Guarantor’s right of indemnity out of the Trust’s assets is charged with the payment of the Guaranteed Money provided that nothing in this clause releases the Guarantor from any liability in the Guarantor’s personal capacity.” (emphasis added)
- The inclusion of these words would appear to reinforce in this case the general proposition that where a trustee acting on behalf of a trust enters into a contract then, as a matter of law, the trustee is personally liable as well as having made the trust liable, and that clear and unambiguous words are required to exclude the trustee’s personal liability. Clause 14.1(a) contains clear and unambiguous words which affirm the trustee’s personal liability.
- The problem is, of course, that once one accepts that the “Guarantor” is not only Leagrove as trustee but also Leagrove in its own right, then one has under consideration a guarantee by the Company of the Company’s own debt. There is abundant authority for the proposition that a promise to pay one’s own debt is not a guarantee enforceable under the Statute of Frauds.
- It is unnecessary, in view of my conclusion earlier in this judgment, to express a final view on this argument. It is also possible that some evidence concerning the circumstances of the drafting and execution of this Guarantee may be relevant to the determination of this issue. It is sufficient, however, for me to say that, on the face of the document, this contention by the Staffords and the Company is sufficiently arguable as to warrant further investigation at trial.
- Accordingly, there will be orders that the applications for summary judgment in each of proceeding BS 1790 of 2009 and proceeding BS 10187 of 2009 will be dismissed. The costs of and incidental to each application will be reserved.
 See Bolton Properties Pty Ltd v JK Investments (Australia) Pty Ltd  QCA 135.
 (1927) IR 520 and the judgment of Hanna J at 538.
 (1937) 58 CLR 710 at 738.
 (1987) 15 FCR 264.
 At 267.
 Citing Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471 at 483.
 (2004) 218 CLR 471.
 To repeat what I said in Bolton Properties Ptd Ltd v JK Investments (Aust) Pty Ltd at .
 Agar v Hyde (2000) 201 CLR 552 per Gaudron, McHugh, Gummow and Hayne JJ at 576.
 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266.
 As suggested by the authors of “Law Relating to Banker & Customer” (Thompson Reuters, Legal Online) at [2.520].
 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at .
 (1972) 127 CLR 503.
  2 Qd R 285.
 (1993-1994) 12 ACSR 78 at 85.
 See, in that regard, Elders Trustee & Executor Co Ltd v EG Reeves Pty Ltd (supra), Helvetic Investment Corporation Pty Ltd v Knight (1984) 9 ACLR 773, and Re Interwest Hotels Pty Ltd (in liq) (supra).
 These authorities are collected in “Modern Contract of Guarantee” (Thompson Reuters, Legal on Line) at [3.420], footnote 7.
- Published Case Name:
ING Bank (Australia) Ltd v Stafford & Ors; Leagrove Pty Ltd & Anor v ING Bank (Australia) Ltd
- Shortened Case Name:
ING Bank (Australia) Ltd v Stafford
 QSC 289
06 Aug 2010
|Event||Citation or File||Date||Notes|
|Primary Judgment|| QSC 289||06 Aug 2010||ING Bank applied for summary judgment in Proceedings BS 1790 of 2009 and 10187 of 2009; applications dismissed: Daubney J|
|Appeal Determined (QCA)|| QCA 131  1 Qd R 140||17 Jun 2011||ING Bank appealed against  QSC 289 in respect of both proceedings; appeals allowed, orders set aside and judgment entered for ING Bank: M McMurdo P, White JA and Martin J|