Asia Pacific International Pty Ltd v Peel Valley Mushrooms Ltd & Symons

[1998] QSC 198

IN THE SUPREME COURT

OF QUEENSLAND  No. 1711 of 1998

Brisbane

[Asia Pacific International Pty Ltd v Peel Valley Mushrooms Ltd & Symons]

BETWEEN:

ASIA PACIFIC INTERNATIONAL PTY LTD ACN 064 150 072 AS TRUSTEE FOR THE PACIFIC PROPERTY RESOURCES GROUP

Plaintiff

AND:

PEEL VALLEY MUSHROOMS LIMITED ACN 073 691 068

First Defendant

AND:

GREGORY BERNARD SYMONS

Second Defendant

REASONS FOR JUDGMENT - HELMAN J.

Judgment delivered 24 September 1998

1  There are two applications by the plaintiff before me for consideration at present.  There are other applications in this action, consideration of which has been deferred pending the determination of the two.  The plaintiff applies first for an order that the first defendant’s amended defence and counter-claim delivered on 5 June 1998 be struck out on the grounds that it is frivolous or vexatious and, or alternatively, that it discloses no reasonable ground of defence.  The second application is that the plaintiff have summary judgment against the first defendant for the amount of its claim which is in excess of $3,000,000.00.

1. As to the application to strike out the defence and counter-claim, I should record that in the course of argument, Mr Stanton, for the first defendant, readily and properly conceded that the pleading is deficient.  Some of its defects were discussed at the hearing, but I do not propose to go into them in detail now because on the view I take of the matters argued before me it is unnecessary to do so.  The central question before me comes down to this: Should the plaintiff have summary judgment?

2. That question was simplified in the course of the hearing when Mr Stanton, on behalf of his client and again properly in my view, abandoned resistance to the plaintiff’s application except on two bases.  I shall explain what they are after giving a short outline of the history of the dealings between the parties which have given rise to this action.

3. The plaintiff lent Elitact Pty Ltd $300,000.00 pursuant to a deed of loan dated 13 May 1997 and executed by the plaintiff, Elitact, and the defendants as guarantors whose obligations are joint and several.  The deed provided that all moneys advanced were to be repaid on or before 13 June 1997, and that the defendants guaranteed to the plaintiff the payment of all moneys payable by Elitact under the terms of the loan agreement.

4. The plaintiff made a further advance to Elitact making the total loan $1,000,000.00.  The loan agreement was varied by a deed of variation dated 27 June 1997 and again executed by the plaintiff, Elitact, and the defendants as guarantors.  The due date for payment became 25 July 1997.  A provision for security in a schedule to the deed of loan was amended to provide for a registered second ranking mortgage from Elitact over land at Ingleburn, New South Wales.  Elitact has failed to repay the moneys borrowed in accordance with the loan agreement as varied, and the plaintiff has demanded payment from the first defendant.  The matters the first defendant relies on in its resistance to the plaintiff’s application for summary judgment arise from allegations that the second mortgage provided for in the deed of variation was not registered in accordance with the plaintiff’s obligations to the guarantors.

5. It is not in dispute that the second mortgage was not registered until 10 July 1998.  The first defendant alleges that in consequence of that delay and of Elitact’s borrowing, on or about 14 August 1997, more money against the security of the land on a first mortgage the value of the security provided by the second mortgage has been so diminished as to render valueless the first defendant’s entitlement to be subrogated to the security if it were to repay the moneys owed by Elitact.  There is evidence before me which, if accepted, could establish the alleged diminution in value, in particular in paragraph 20 of an affidavit of Mr Bryan Cook, an accountant and director of the first defendant, filed on 7 September 1998.

6. The plaintiff puts its case on two bases derived from the principles explained by Dixon J in Williams v Frayne (1937) 58 C.L.R. 710 at p. 738:

   “If the guarantee is 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 first defendant relies on a breach of a contractual obligation by the plaintiff and alternatively on a breach of the plaintiff’s equitable duty to the first defendant.  The duty to the guarantors was to take reasonable care that the benefit of the security should not be lost: ibid, pp. 738-739.  The first defendant alleges that in consequence of a breach of a condition of the guarantee that it is absolutely discharged, and alternatively it claims to be fully discharged in equity by reason of a breach of the equitable duty.  This is one of those instances, according to the first defendant’s case, in which the result will be the same whether the breach of condition is relied on or the breach of an equitable duty is relied on: see O’Donovan & Phillips, The Modern Law of Contract of Guarantee, 3rd edition (1996), p. 393.

1. In essence, on behalf of the first defendant it was said that the guarantee was given on an express condition, or alternatively a condition implied by the circumstances, that the second mortgage would be registered immediately upon, or within a reasonable time after, the advancing of the money on 27 June 1997.  The “reasonable time” to which I have referred was not particularized, except to say that it would certainly have been before 25 July 1997.  That the condition was express, Mr Stanton contended, was shown inter alia by the use of the word “[r]egistered” in the deed of variation of loan agreement.  Alternatively to that contention Mr Stanton fell back on the allegation that the condition was implied.  Success of that submission would depend of course on an assessment of all the circumstances of the case, including the “objective” or “general” setting in which the contract had come into existence and must be construed: Reardon Smith Line v. Hansen-Tangen [1976] 1 W.L.R. 989 at pp. 996-997 per Lord Wilberforce; and Ankar Pty Ltd v. National Westminster Finance (Australia) Ltd (1987) 162 C.L.R. 549 at p. 561 per Mason A.C.J., and Wilson, Brennan, and Dawson JJ. Support for the assertion that there was an implied condition of the kind contended for can in my view be found in Re Kwan, ex parte Hastings Deering (Solomon Islands) Ltd (1987) 15 F.C.R 264. It may reasonably be thought that the first defendant’s case for an express condition is not as strong as its case for an implied condition, but that is not a matter for decision now. I conclude however that there is a question in dispute which ought to be tried on the first defendant’s contention that it was discharged by a breach by the plaintiff of a contractual obligation: the history of the dealings between the parties as revealed in the evidence could lead to that result.

2. I am persuaded that the first defendant also has established a triable issue on the alleged breach of the plaintiff’s equitable duty to it.  Again the first defendant relies on the failure of the plaintiff to ensure the registration of the second mortgage immediately after the advancing of the money on 27 June 1997, or alternatively within a reasonable time after that date and before 25 July 1997.  In the further alternative, the first defendant contends that the second mortgage should have been registered before the moneys were advanced to Elitact on the security of the land in August 1997.  In the circumstances of the case I think the first defendant’s contention that the plaintiff failed in its duty to take reasonable care by failing to ensure that there was early registration of the second mortgage is one that should go to trial.

3. In the result then I conclude that the plaintiff’s application for summary judgment must be refused, but since the issues to which I have been referring have not all been properly raised on the first defendant’s impugned pleading, it will be struck out and the first defendant given leave to deliver a new pleading.  Although some of the present pleading could be salvaged I think the best course is to strike it all out and to permit a new one to be delivered.  I shall invite further submissions on the form of the orders to be made, and costs.