Angas Securities Ltd & KWS Capital (No 2) P/L v Williams - [2007] SADC 41

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil: Appeal Against a Master's Decision)
ANGAS SECURITIES LTD & KWS CAPITAL (NO 2) P/L v WILLIAMS
[2007] SADC 41
Reasons for Decision of His Honour Judge Chivell
26 April 2007
PROCEDURE
Appeal from a Master; nature of the appeal; summary judgment entered in favour of plaintiffs; claim on contract of guarantee; defendant became guarantor after a debt restructure; whether guarantee supported by consideration; whether defendant has an arguable defence.
Held: appeal by way of rehearing with powers in 6R 292; defendant has an arguable case that guarantee not supported by consideration; appeal allowed; judgment set aside; application for summary judgment dismissed.
Bowman & Bowman v Westpac Banking Corporation (1997) 194 LSJS 115; South Esplanade Developments P/L v Astill & Anor [2007] SADC 24; Leasefin Corporation v Clarke & Ors Judgment No S3660; McKay and Another v National Australia Bank [1998] 1 VR 173, applied.

ANGAS SECURITIES LTD & KWS CAPITAL (NO 2) P/L v WILLIAMS
[2007] SADC 41
Introduction

This is an appeal by Paul Douglas Williams, against an order made by Master Bampton on 18 December 2006 pursuant to Rule 25 of the District Court Rules, whereby summary judgment was entered in favour of Angas Securities Limited and KWS Capital (No 2) Pty Limited, in the sum of $3,200,000 plus enforcement expenses and costs. I will refer to Angas Securities Limited and KWS Capital as the plaintiffs, and to Mr Williams as the defendant.
The plaintiffs’ claim is based upon a contract of guarantee. They argue that in a written contract of guarantee and indemnity, dated 25 November 2004, the defendant guaranteed the payment by Port Adelaide Wool Stores (SA) P/L (“PAWS”), a company of which he was the principal director and shareholder, all amounts payable pursuant to a loan agreement entered into on the same day. The amount guaranteed was capped at $3,200,000, plus interest and expenses.
The loan agreement was extended on 22 March 2005. The plaintiffs gave a Notice of Demand on 11 May 2006 demanding payment. It is common ground that the money has not been paid.
The Decision Appealed From
There was extensive affidavit material before the Master. Indeed, the hearing was adjourned to enable the defendant to place further material before the Court.
The Master prepared comprehensive written reasons for decision which were posted to the parties on 18 December 2006.
I set out the following sections of her Honour’s conclusions:
³⁵To grant summary judgment the plaintiffs must demonstrate they are entitled to the relief sought and there is no real question to be tried.
³⁶The power to order summary judgment must be exercised with exceptional caution and should never be exercised unless it is clear there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99.
³⁷In my view, this is a matter simply where Port Adelaide Wool Stores, the borrower, borrowed $3,200,000 in November 2004 and the defendant guaranteed repayment of that obligation. Paragraph 9 of Mr Hower’s affidavit deposes to the money being advanced. There is no suggestion in any of the defendant’s affidavits that the money was not advanced to Port Adelaide Wool Stores. In fact, in the 14 August 2006 affidavit the defendant deposes at paragraph 6 “It was agreed that the borrower would now be Port Adelaide Wool Stores (SA) Pty Ltd”. It cannot be said the transaction did not involve consideration.
³⁸I agree with the plaintiffs’ counsel that had the defendant guaranteed repayment of Parist Holdings Pty Ltd’s obligations to the plaintiffs but no fresh advance had been made, then there would be no consideration. That is not what happened. The defendant does not dispute that the monies were advanced to Port Adelaide Wool Stores. He raises the existence of Parist Holdings Pty Ltd, in my view, to confuse the issue.
.....
⁵²The plaintiffs have demonstrated their entitlement to the relief sought. The defendant has failed to raise any cogent ground of defence and demonstrate there is a triable issue in respect of it: Settlement Wine Company Pty Ltd v National & General Insurance Company Ltd (1998) 143 LSJS 398; Benefit Strategies Group Inc & Anor v Prider (2005) 91 SASR 544. The defendant has not established there is a fair or reasonable probability he has a bona fide credible defence, there is no real question to be tried and the plaintiffs are entitled to summary judgment against the defendant in the sum of $3,200,000 plus costs incurred by the plaintiffs in enforcing the Guarantee.
The Nature of the Appeal
Mr Morcombe QC, counsel for the appellant, argued that the appeal is in the nature of a rehearing. He referred to Rule 97.01. He said that, in any event, since it was his client’s position that the Master’s decision was the result of error, it did not matter if the appeal was one in the strict sense or by way of rehearing.
Mr Rochow, counsel for the respondents, referred to the terms of Rule 97.01, which state:
..... an appeal pursuant to s.43(2) of the (District Court) Act against an interlocutory judgment of a Master shall be by way of rehearing and, on matters involving the exercise of a discretion, the Judge may exercise his own discretion without regard for the manner in which it was exercised in the decision, order or direction appealed against.
He submitted that this decision finally disposed of the rights of the parties to the action, and was therefore not interlocutory in nature. He submitted that this was therefore an appeal in the strict sense, citing the decision of Russell DCJ in Bowman & Bowman v Westpac Banking Corporation (1997) 194 LSJS 115 at p116.
Mr Rochow submitted that this prohibits the appellant from arguing “matters afresh”, and, in particular, from contending that there was no valid loan agreement between the plaintiffs and PAWS, and/or that no moneys were advanced, and hence none were owing, pursuant to that agreement.
The notice of appeal was lodged on 9 January 2007. The commencement date for the District Court Civil Rules 2006 was 4 September 2006 (6R 2). Rule 6DCR 8 states:
(1)the general principle is that the old rules (i.e. the District Court Rules 1992) continue to apply to -
(a).....
(b).....
(c)appellate or review proceedings commenced before the commencement date.
Rule 6R 4 defines an “appellate proceeding” as an appeal. Clearly, that is what is before me.
I conclude, therefore, that the old Rules do not apply, and that the 2006 Rules apply to appellate proceedings commenced after the commencement date, 4 September 2006, and hence they apply to this appeal.
Rule 6R 292 sets out the powers of the Court at the hearing of the appeal. It provides:
(1)     An appeal is to be by way of rehearing (unless the law under which the appeal is brought provides to the contrary).
(2)     Subject to any limitation on its powers arising apart from these rules, the Court may determine an appeal as the justice of the case requires despite the failure of parties to the appeal to raise relevant grounds of appeal, or to state grounds of appeal appropriately, in the notice of appeal.
(3)     Subject to any limitation on its powers arising apart from these rules, the Court may-
(a)     draw inferences of fact from evidence taken at the original hearing and, in its discretion, hear further evidence on a question of fact;
(b)     amend or set aside the judgment subject to the appeal and give any judgment that the justice of the case requires;
(c)     remit the case or part of the case for rehearing or reconsideration;
(d)     make orders for the costs of the appeal.
In light of that, I reject Mr Rochow’s submission and hold that the appeal is a rehearing, with the powers set out in Rule 6R 292.
Principles to be Applied
In considering this appeal, I am guided by the same authorities referred to by Millsteed DCJ in South Esplanade Developments P/L v Astill & Anor [2007] SADC 24 (paras 36-38):
In Wicklow Enterprises Pty Ltd v Doysal Pty Ltd and Anor King CJ identified three mischiefs created by applications for summary judgment. He said:
An attempt to determine by means of the Summons for Immediate Relief issues of fact and law requiring substantial hearing time produces mischiefs which are well illustrated by the course which the present case took.
The first such mischief is that if the relief sought is likely to be delayed rather than expedited by the procedure followed …
The second mischief is that the adoption of this procedure leads to the decision of complex issues of fact of law other than by means of a regular orderly trial. The attempt to resolve such issues by means of a succession of affidavits and intermittent examination and cross-examination of witnesses rather than by means of a regular and orderly trial can only be regarded as unsatisfactory and possessing a tendency to lead to an incorrect result.
The third mischief is that if the procedure adopted in this case were followed on a substantial scale, it would disrupt the orderly arrangement of the business of the Court and would be unjust to the parties whose cases were listed for hearing in the ordinary way.
Later, in Kadeh v Gill and Others Doyle CJ said:
An application for a summary judgement invites the Court to do more than determine the adequacy of a Statement of Claim or Defence. It usually invites the Court to try and to determine facts by a summary process, usually by affidavit. If the proceedings are disposed of on affidavit, it deprives the relevant party of the usual right to a trial on oral evidence. Unless there are circumstances of urgency, the only basis for making an order can be that the case is, as a matter of law and as a matter of fact, bound to fail. There has to be some good reason to deal with a claim or defence in this summary fashion.
It is clear from these authorities that DCR 25.02 may be used where there is no serious question to be tried or to determine issues which are capable of speedy resolution. An application for summary judgment should succeed only where the defendant’s case is bound to fail either as a matter of fact or law.
Mr Morcombe referred to the judgment of Olsson J in Leasefin Corporation v Clarke & Ors Supreme Court Judgment No S3660 delivered 16 October 1992. At [36], his Honour said:
The whole concept of the summary judgment procedure is that, once it appears that a plaintiff has a strong prima facie case for seeking relief, a defendant must, with reasonable particularity, clearly and unequivocally demonstrate that there is a ground of defence which is more than ephemeral, and is patently clearly arguable.
Mr Morcombe acknowledged that, on the plaintiffs’ case, it was conceded before the Master that a prima facie case for relief had been established. However, he argued, correctly in my view, that this concession did not extend to an abandonment of the defendant’s case that there was no consideration for the guarantee. He submitted that it was “patently, clearly arguable” that there was not.
The Case for the Appellant
Mr Morcombe for the appellant challenged the Master’s finding that there is no suggestion in any of the defendant’s affidavits that the money was not advanced to PAWS. He said that this issue is central to his client’s defence. It is necessary to examine the chronology of events to understand his submission:
·In May 2004, Parist Holdings Pty Ltd (“Parist”), another company owned and controlled by the defendant, borrowed $3,200,000 from Angas Securities Limited. Parist provided mortgages and other security for the loan. This loan was not guaranteed by the defendant.
·In an affidavit sworn on 14 August 2006, the defendant deposed to the fact that the money was advanced on or about 11 May 2004, and was used to purchase a property at Port Adelaide.
·At the request of the defendant, the debt was “restructured” in November 2004.
·As part of the restructure, a new loan agreement was entered into on 25 November 2004 between both of the plaintiffs and PAWS, and all amounts payable by PAWS pursuant to that loan agreement were guaranteed by the defendant by written agreement on the same date. As far as I can ascertain, there was no discharge or revocation of the loan agreement with Parist.
·There was a dispute on the affidavit material as to whether monies were advanced by the plaintiffs. In paragraph 9 of an affidavit of Matthew John Hower, sworn 24 May 2006, it was asserted that:
The sum of $3,200,000 was subsequently advanced to Woolstores by the plaintiffs pursuant to the Loan Agreement.
·The word “subsequently” referred to the date mentioned in paragraph 8 of the affidavit, namely 25 November 2004. Thus, it was being asserted that the money was advanced after 25 November 2004, although the assertion was not specific as to the precise date.
·The defendant asserts in the 14 August 2006 affidavit that no advances were made pursuant to the November loan agreement with PAWS.
·The defendant has deposed in a further affidavit that no further advances were made to Parist, PAWS or himself after the May 2004 advance (see affidavit sworn 28 August 2006, at [23] and [21]).
On the basis of this evidence, the defendant argues that the guarantee he gave was not supported by consideration since any consideration had already passed between Angas Securities and Parist, a transaction to which he was not a party.
Mr Morcombe referred to the terms of the defendant’s guarantee of the November Loan Agreement. At [2.1] of the guarantee it was agreed:
You guarantee that the borrower will pay us all amounts payable under the guaranteed agreement when they are due.
The “guaranteed agreement” referred to in that paragraph was defined in the schedule as:
Between the borrower and us, dated on or about 25 November 2004.
The “borrower” is defined in the same schedule as Port Adelaide Wool Stores (SA) Pty Ltd.
A further issue raised by the defendant is that the 25 November 2004 agreement which the defendant guaranteed is not executed by PAWS, it is executed “for and on behalf of Parist Holdings Pty Ltd by Paul Douglas Williams - its authorised representative”. Clearly, that was an error. A question arises whether it invalidates the loan agreement, and if so, whether there is anything payable pursuant to it.
Leaving these technicalities aside, the main point of the defendant’s case on appeal is whether any money was advanced to PAWS by the plaintiffs pursuant to the November 2004 Loan Agreement.
The schedule to the agreement describes PAWS as the “Borrower”, the “loan amount” as $3,200,000, and the “guarantor” as Paul Douglas Williams. The “Lender” is described as Angas Securities Limited and Hower Corporation Pty Ltd. Hower Corporation Pty Ltd later became KWS Capital (No 2) Pty Ltd. Neither Hower Corporation nor KWS Capital were parties to the May loan agreement with Parist.
The November loan agreement provides:
The Lender as defined in the Schedule has agreed to lend and the Borrower as defined in the Schedule has agreed to borrow certain funds being the loan amount as defined in the Schedule upon the terms and conditions of this Loan Agreement.
There is no reference to the May agreement, no mention of an antecedent debt, no mention of a prior advance. Mr Morcombe also referred to correspondence between the parties, which made no mention of a discharge of the loan to Parist, and a further loan to PAWS.
Mr Morcombe argued that there is a clear factual dispute as to whether there was a “fresh advance” in November 2004. It is denied by the defendant, and there is no supporting paperwork to support Mr Hower’s rather vague assertion that there was. He argued that the existence of the dispute, apparent on the papers, should have been enough to deny the plaintiffs’ summary judgment.
The Case for the Respondent
Mr Rochow abandoned the approach taken by counsel for the plaintiffs before the Master that there had, on the evidence, been a further payment of money by them after the November 2004 loan agreement was signed.
He argued instead that the word “advance” in the loan agreement was wide enough to encompass a loan assumed by a substituted party pursuant to a debt restructure.
Mr Rochow referred to the definition of “advance” in the Shorter Oxford English Dictionary at p31 which includes:
3. Payment beforehand, or on security; an anticipatory payment; a loan.
Mr Rochow’s argument is encapsulated in the following passage of his submission:
..... because if you have on one day a debtor one being liable, then by arrangement among the parties debtor two becoming liable instead for the same amount, that is an advance to debtor two, even if no cash changes hands. There doesn’t need to be the physical round robin of cheques for that to be effected, because as long as there is a loan liability, once there’s a loan liability then there has been an advance. (T.50)
Mr Rochow further argued that since the money lent to Parist has never been repaid, the fact that PAWS signed a fresh loan agreement leads to the conclusion that the money was “lent”, or “advanced” to PAWS in substitution for Parist.
Mr Rochow pointed to the solicitor’s certificate given by Mr Rubenstein of Arnold, Bloch Liebler to the defendant. Mr Rubenstein’s certificate includes the following statement:
One aspect of the transaction is that Angas Securities Limited has been requested by Williams and the Parist Group to release certain real property and Corporate Securities in consideration for certain events taking place including the execution of this Guarantee by Williams and the provision of this certificate to the financier by me.
The Master also referred to this certificate at paragraph 40 of her reasons. Mr Rochow argued that this is evidence of the intention of the parties as to consideration for the restructure.
Mr Rochow also referred to the extension of the November 2004 loan agreement on 22 March 2005. This agreement is executed by PAWS as “borrower”, it refers to a loan amount of $3,200,000, and that the other terms were similar to those in the November 2004 agreement. Again, it was suggested that this was an acknowledgment by PAWS of the nature of the November 2004 transaction.
Was There Consideration?
Mr Morcombe referred to McKay and Another v National Australia Bank Ltd [1998] 1 VR 173, a decision of the Victorian Court of Appeal, in which Winneke P set out the relevant principles at p177:
It is, of course, well established that a contract of guarantee, if not under seal, must be supported by consideration and that the onus of proving that there is consideration to support it is on the party who seeks to rely upon it: J. O’Donovan and J. Phillips, The Modern Contract of Guarantee, 3^rd ed., (1996), pp.52-3. The consideration relied upon to support the guarantee must be real and valuable and not illusory or a sham: Reid Murray Holdings Ltd. v. David Murray Holdings Pty. Ltd. (1972) 5 S.A.S.R. 386. Thus the mere recitation in a document of guarantee that the guarantee was given in consideration for “advances to be made” by the person to whom the guarantee was given will not, by itself, be sufficient to support the guarantee if the evidence demonstrates that no such advances were, or were intended to be made: Elder, Smith and Co. Ltd. v McKellar (1895) 21 V.L.R. 664 at 668 per Hood J.
Furthermore, “past” consideration is not sufficient consideration. A guarantee given to secure a debt already incurred, but unsupported by any further consideration, will fail for want of valuable consideration:
... if it is evident that the guarantee was intended to be limited to past transactions alone, for example, because the surety knew that the principal debtor was already indebted to the creditor in an amount exceeding the limit of the surety’s guarantee, the guarantee will be void as being given without consideration.
Chitty on Contracts, 27^th ed., (1994), p. 1314: see also Halsbury’s Laws of England, 4^th ed., re‑issue, vol. 20, para. 140.

In that case, Winneke P observed that there had been no suggestion that there had been any “forbearance to sue” which might have amounted to consideration for the guarantee. In order for such forbearance to constitute consideration, Winneke P said:
There must be either an undertaking to forbear, or an actual forbearance at the surety’s request: Halsbury’s Laws of England, 4^th Edition, re‑issue, Vol 20, para 142; Murphy v Timms [1987] 2 Qd. R. 550 at 551, per Kneipp J
It was not argued by Mr Rochow that there had been any such undertaking or request. It may be that there is an implied forbearance in the agreement to restructure, but that would need to be the subject of evidence. In relation to that, I note that the loan to Parist has not been discharged or revoked.
Mr Rochow did not seek to distinguish McKay’s case. He referred me to Halsbury’s Laws of England at Volume 9, paragraph 310 (the paragraph number may be an error), but my reading of that volume does not throw any doubt on the correctness of the analysis of the relevant principles by Winneke P.
Conclusion
In my opinion, the defendant has a “clearly arguable” case that the guarantee executed on 25 November 2004 was not supported by consideration and was therefore unenforceable. I set out the following factors which have led me to that conclusion:
·the argument that the word “advance” in the loan agreement includes the assumption of an antecedent debt strains the meaning of the word beyond ordinary commercial usage (note, for example, the use of the word by Winneke P in McKay’s case (supra));
·the solicitor’s certificate amounts, at best, to parol evidence of the intention of the parties to the November 2004 loan agreement which might be admissible in a court if it can be established that the intention of the parties is not apparent from the written contract. This is not an issue that is amenable to adjudication on an application for summary judgment;
·the evidence of the extension of the loan agreement in March 2005 falls into the same category;
·the argument that PAWS was simply “substituted” for Parist as the debtor overlooks the fact that Parist had only borrowed from one plaintiff and not the other, and still begs the question of the validity of the “substitution” if it is unsupported by consideration for the promise of PAWS to repay the loan.
It is apparent from the judgment of Winneke P in McKay (supra) that the onus is on the plaintiffs to demonstrate that the promise was supported by valuable consideration. They must do more than simply point to the fact that their loan of $3,200,000 has not been repaid, and that the defendant, being the owner and controller of the various companies, should repay it. The defendant’s guarantee only extended to PAWS. If PAWS is not liable, then there is no liability to guarantee.
For those reasons, I disagree with the Master’s conclusion that there is “no real question to be tried” here. (Reasons, [52].) There is no question that there was a loan of money. In my judgment, there is a real question as to which of the plaintiffs lent the money and to whom. It would appear that this issue was not clearly ventilated before her Honour at first instance, but it is my conclusion that these questions are clearly arguable.
The appeal is allowed. The Master’s orders made on 18 December 2006 are set aside. In lieu thereof, the plaintiffs’ application for summary judgment is dismissed. I will hear counsel as to costs.