Bank of Western Australia v Salmon [No 2]

[2009] NSWSC 226

CITATION:	Bank of Western Australia v Salmon [No 2] [2009] NSWSC 226
HEARING DATE(S):	25/3/09 - 26/3/09
JUDGMENT DATE :	2 April 2009
JURISDICTION:	Common Law Divisiion
JUDGMENT OF:	Kirby J
DECISION:	1. There should be judgment for the plaintiff in the sum of $5,361,510.72. 2. The defendant should pay the plaintiff’s costs.
CATCHWORDS:	Civil Law - action by bank on a Guarantee - whether representation and collateral contract.
LEGISLATION CITED:	Contracts Review Act 1980
CATEGORY:	Principal judgment
CASES CITED:	Bank of Western Australia v Salmon [No 1] [2009] NSWSC 224 Coady v J Lewis & Sons Ltd [1951] 3 DLR 845
PARTIES:	Bank of Western Australia ACN 050 494 454 (Pl) Owen Salmon (Def)
FILE NUMBER(S):	SC 2007/13391
COUNSEL:	P Dowdy (Pl) In Person (Def)
SOLICITORS:	Gadens Lawyers (Pl) Unrepresented (Def)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

KIRBY J

Thursday 2 April 2009

2007/13391 BANK OF WESTERN AUSTRALIA (ACN 050 494 454) v Owen SALMON

JUDGMENT [NO 2]

1 KIRBY J: The Bank of Western Australia (the plaintiff) brings an action against Mr Owen Salmon (the defendant) to recover monies advanced to a company TCBS SPV Tomaree Pty Limited (“Tomaree”), which the bank alleges Mr Salmon guaranteed.

2 On the second day of the hearing, Mr Salmon sought leave to withdraw certain admissions made in an Amended Defence, affirmed on 8 April 2008 and filed on 13 May 2008. He foreshadowed that, if given leave, he would apply to further amend that defence. Leave, however, was refused in an extempore judgment given on 26 March 2009 (Bank of Western Australia v Salmon [No 1] [2009] NSWSC 224). That judgment set out the background to this claim and identified, by reference to the pleadings, the matters in contest. I will not repeat, in this judgment, that analysis.

3 I should, however, say something about one issue that arose during the course of the hearing. The bank sought to rely upon the failure of Mr Salmon, then represented by lawyers, to traverse that part of the Statement of Claim which asserted the Guarantee. Under the rules, the Guarantee had therefore been admitted. However, because the Amended Defence raised issues concerning the Guarantee in a number of other paragraphs, I ruled that the plaintiff should prove the Guarantee. The original document was then produced (Exhibit G), a copy having already been tendered (without objection) as part of Exhibit A. The Guarantee was in booklet form, with a spiral binding. Mr Salmon had signed the last page and identified his signature, and that of his solicitor, Mr Lucas, when giving evidence. The document was executed on 30 March 2008. At the same time, Mr Salmon provided a Statutory Declaration, which was in these terms: (Exhibit A: p 182)

“I, OWEN SALMON (declarant)
of 39 WOOLWICH ROAD, WOOLWICH, NSW, 2110
DO SOLEMNLY AND SINCERELY DECLARE AS FOLLOWS:

1. I am the Third Party Mortgagor, Guarantor, Surety Morgagor, Indemnifier for the Borrow (delete inapplicable reference) named in certain loan security documents between


TCBS SPV TOMAREE PTY LIMITED ACN 112 773 681 (borrower) and

Bank of Western Australia Ltd ACN 050 494 454 (lender) relating to property located at

12 & 16 TOMAREE STREET, NELSON BAY, NSW, 2315

2. I have received independent legal advice regarding the loan security documents referred to in paragraph 1.
3. After receiving that advice I have freely and voluntarily signed the following documents:
(Specify the documents produced for signature)
(a) SMALL BUSINESS & CONSUMER GUARANTEE & INDEMNITY


(b) FACILITY AGREEMENT

(c) ANCILLIARY DOCUMENTATION”

4 Mr Lucas again witnessed Mr Salmon’s signature, he being the person who provided the advice. On the evidence, I accept that the Guarantee (Exhibit G) was given by Mr Salmon.

The issues.

5 What, then, are the remaining issues? There are two issues and possibly three, depending upon the resolution of the second. They are:

· First, whether the bank made a demand upon Mr Salmon in respect of the Guarantee in accordance with the terms of that agreement.

· Secondly, whether, as set out in para [11] of the Amended Defence, there was a collateral contract between the bank and Mr Salmon, whereby the bank through Mr Brendan Ross, represented to Mr Salmon that it would first sell the Nelson Bay property before looking to him under the Guarantee. It was common ground that the property had not been sold. The action, according to Mr Salmon, was therefore premature.

· Thirdly, if there was a representation in the terms alleged by Mr Salmon but, in law, no collateral contract, was the Guarantee contract unjust by reason of that representation? Should relief be given under s 7 of the Contracts Review Act 1980?

6 Let me deal with each issue in turn.

7 The Guarantee provided that any amount which the customer (in this case, Tomaree) does not pay when it is due must be paid by the guarantor (Cl 3.2). Under Cl 8.3(b) and (c), the Guarantee stipulated that communications to the guarantor may be left at his residential or business address last known to the bank, or sent by post to that address.

8 On 3 July 2007, Tomaree having defaulted under the Facility Agreement, Mr Justin Bates of Gadens Lawyers wrote to Mr Salmon at 39 Woolwich Road, Woolwich, stating that his firm had instructions to make a demand upon him as guarantor. A copy of the demand was enclosed seeking $3,670,602.92, reserving the right to make further demands as amounts fell due (Exhibit D). There was affidavit evidence from Jude Bettens (Exhibit E), the Business Service Manager of Gadens, and Angela O’Donnell (Exhibit D) that Mr Bates’ letter (with the enclosed demand) was duly posted. Neither witness was required for cross examination.

9 Mr Ken Owen, the Manager of the Bank of Western Australia, swore an affidavit (Exhibit C) that the address of Mr Salmon on the Facility Agreement was 39 Woolwich Road, Woolwich, and indeed that can be seen from the Facility Agreement which was tendered (Exhibit A: p 14). The Statutory Declaration made by Mr Salmon on 30 March 2006, shortly before funds were transferred to his company, provided the same Woolwich address. On 13 March 2007, that is, before the posting of the demand, the plaintiff undertook a search with the Australian Securities and Investments Commission in respect of the company Tomaree. The search was annexed to Mr Owen’s affidavit (Exhibit C). It disclosed the name of Mr Owen Salmon as the sole director and his address as 39 Woolwich Road, Woolwich. A further search was undertaken on 30 July 2007, that is, after the demand, and the same information was provided.

10 Mr Salmon, in submissions, said that he did not believe that the plaintiff had ever served the notice on him (T 122). He said that he was certain that he was not living at that address at that time. Indeed, by reason of information that he had provided to the authorities, he was in fear and in hiding (T 122).

11 Counsel for the plaintiff responded that Mr Salmon did not, in either his first or second affidavits, assert that the demand had not come to his notice.

12 I am satisfied that the bank gave Mr Salmon notice of its demand under the Guarantee at his last known address, in accordance with the terms of that Guarantee. There is, in my view, no substance in the first matter advanced by Mr Salmon.

13 I should, in this context, also advert to paragraph [12] of the Amended Defence where reference was made to a Canadian case, Coady v J Lewis & Sons Ltd [1951] 3 DLR 845. It is asserted that, by reason of that authority, the Guarantee had been discharged. I disagree. The case, in my view, does not establish discharge by operation of law.

14 Let me move then to the issue relating to the collateral agreement.

The collateral agreement issue.

15 Mr Salmon filed an affidavit on 23 April 2008 (Exhibit 1) in which he set out a conversation with Mr Brendan Ross. Mr Ross was the Business Development Manager of the Bank of Western Australia at its Parramatta office. He dealt with Mr Salmon. According to Mr Salmon, they spoke in these terms:

“18. I was concerned about giving a personal guarantee for a facility of $12 million all up ... In this context I had a conversation with Brendan Ross, an officer of the Plaintiff to the following effect:
ME: I’ve just been going through the documents and I’ve noticed that I am named as a guarantor of the loan.
ROSS: That is correct. We require all directors to give personal guarantees on our loans.
ME: I’m a little bit concerned about that. I’ve never done a development before but from looking at the feasibility study I can see that we will need to inject funds in order to obtain the construction certificate. That is approximately $400,000 for consultants and $200,000 for interest before the construction facility kicks in. We don’t have that money, it is coming from our joint venture partner Ian Lazar.
ROSS: Are you sure that he is going to be able to provide the money?
ME: No, but what I do know is that if he does not come through and we have to sell the property to another developer we will be able to get $4.5 million any day of the week. This means we will be able to comfortably pay you back. My concern is that selling a development site is not like selling a house. You can’t just put it on the market and expect to find a buyer the next day. We sniffed around this site making our investigations for at least 6 months before we exchanged contracts. My concern is that if Lazar does not come up with the money and either we or you have to sell the property it will take 6-12 months. If that happens, and we have not been paying interest in the meantime, you are liable to bankrupt me under the guarantee by then.
ROSS: No, that wouldn’t happen. We have a strict policy to sell the security first and then only after that if there is a shortfall do we sue the guarantor. That is what would happen in this case.
ME: So if the money does not come through from Lazar, and the property has to be sold, you won’t sue me for the money until the property has been sold?
ROSS: Correct.
ME: Okay. In that case I am happy to sign.”

16 An affidavit was filed on behalf of Brendan Ross (Exhibit B) in which he said this:

“3. I utterly deny that the conversation alleged in the above affidavit ever took place.
4. I deny informing Owen Salmon that Bankwest would only pursue his guarantee after the sale of the property security. I deny I would have made such a statement because:
(a) the standard guarantee Bankwest used at the time was not conditional on the sale of the property security; and
(b) I would not generally discuss with any potential guarantor the circumstances in which a guarantee would be enforced. I would automatically request that each guarantor seek independent legal advice before executing any guarantee.
5. Further, if Owen Salmon, or any other potential guarantor for that matter, had requested such a condition be placed on his guarantee, I would have first ascertained his reasons for requesting such a condition and secondly, would have referred the request to the relevant approval authority within the Bank (ie: HBOS Credit Sanctioning) for their advice and decision at the time.”

17 A further affidavit was filed by Mr Salmon on 1 March 2009 (Exhibit 2), which included the following paragraph:

“8. In a conversation held with ... Brendan ... were told that I could not and would not guarantor (sic) the loan to Bankwest. I was told that the property was sufficient security for the purposes of the loan and that I was not required to give personal guarantees, only company guarantees.”

18 Mr Ross was called to give evidence. He denied the suggestion made by Mr Salmon in paragraph [8] above. He acknowledged that the property at Nelson Bay was sufficient security (T 97), but not to the exclusion of a Guarantee. He did not, according to his evidence, ever suggest to Mr Salmon that he was not required to give a Guarantee to the bank (T 97/98).

19 At the conclusion of evidence, Mr Salmon addressed briefly. He repeated the assertions in the Amended Defence and his affidavit, that Mr Brendan Ross had given an assurance that the bank would first proceed against the Nelson Bay property. The action on the Guarantee was therefore premature, since it was common ground that the bank had not yet sold the Nelson Bay property. Mr Salmon submitted that, by reason of the assurance, the bank was estopped (T 122). Indeed, the Guarantee was, as stated in the Amended Defence, void abinitio, or had been discharged by operation of law.

20 Counsel for the bank then responded. He submitted that, for a number of reasons, the Court would prefer the evidence of Mr Ross to that of Mr Salmon. First, the contemporaneous documentation demonstrated that there was a Guarantee and Mr Salmon was the Guarantor. On 7 December 2005, before the Facility Agreement was executed, the bank gave Tomaree what was termed an “Indicative Banking Proposal”. The proposal named Tomaree as the borrower and Owen Salmon as the guarantor. On the last page of the document there was provision for the signature of the borrower and the signature of the guarantor. On 7 December 2005 Mr Salmon signed for the borrower, being described as the sole director and company secretary of Tomaree (Ex L). He also signed, above his name, Owen Salmon, as guarantor. He initialled each page of the document. The Facility Agreement was then executed on 30 March 2006 (witnessed by his solicitor, Mr Lucas) (Ex J). Again, Mr Salmon was named as guarantor on the front page of the document (Ex A: p 11). He was named again in the body of the document (Ex A: p 14). Once more he signed the agreement on behalf of the company, as its sole director and secretary, and in his own name as guarantor (Ex A: p 53). The Guarantee itself was executed the same day, again signed by Mr Salmon as guarantor (Ex A: p 166; Ex G). Also on the same day Mr Salmon made a Statutory Declaration as guarantor, acknowledging that he was voluntarily signing the document, having received advice in relation to the Guarantee, the Facility Agreement and ancillary documents (Ex A: p 182).

21 Settlement followed immediately thereafter. The Mortgage executed on 3 April 2006 contained four references to Mr Salmon guaranteeing up to $12.26 million (Ex A: p 90). The Deed of Variation, executed on 3 July 2006, named Mr Salmon as guarantor on the front page (Ex K; Ex A: p 65). In the body of the document it identified the parties naming Tomaree as the borrower, the Bank of Western Australia Limited as the lender, and Owen Salmon as the guarantor (Ex A: p 67). Mr Salmon executed the agreement on behalf of Tomaree as its sole director and secretary and in his own name, as guarantor.

22 Secondly, the fact of a Guarantee is not surprising. It was a large development ($12.2 million). The borrower was a private, special purpose company, with no particular issued capital. You would expect the bank, in these circumstances, to insist upon a Guarantee, and plainly it had done so from the outset.

23 Thirdly, Mr Ross gave firm evidence that he had not made the representation attributed to him by Mr Salmon. To have done so would have been in breach of his duty. It would have negated everything which the bank had set out to achieve in the transactional documents.

24 Fourthly, counsel submitted that Mr Salmon’s evidence on this and other aspects was frankly unbelievable. He should not be accepted unless corroborated. There was no corroboration for any of these claims. On the contrary, the contemporaneous documentation which has been identified supported Mr Ross’ account, that the bank would naturally have insisted upon a Guarantee. Mr Salmon, no doubt full of optimism at this point, willingly gave that Guarantee.

25 I accept the bank’s submissions. I am not persuaded, as a matter of probability, that the representation was made by Mr Ross. Mr Salmon cross examined Mr Ross. He asked whether he received a commission on the loan. Mr Ross said that he did not. No doubt it would have been submitted, had there been a commission, that Mr Ross had a motive to push through this transaction. On the evidence, Mr Salmon could suggest no reason why Mr Ross would have said something which was plainly at odds with the document which he was asking Mr Salmon to sign. There being no representation, I need not further consider the issue of a collateral agreement. The third issue, under the Contracts Review Act 1980, does not arise.

26 Mr Salmon sent a facsimile after the close of addresses. The fax related to the issue of costs. He enclosed an exchange of correspondence between his former lawyers, Bransgroves (letter 16.10.08) and the bank (Gadens 20.10.08). Through his solicitors he said that, by reason of his many debts, as set out in the body of the letter, he had no money. The proceedings were therefore futile. There was no point in making him bankrupt. In these circumstances, he asked that the proceedings be discontinued. The bank declined to do so. Mr Salmon asked that this material be taken into account on the issue of costs.

27 The bank has elected to proceed with the matter. Mr Salmon, appearing for himself, resisted judgment. The bank has been successful. It seems to me the usual order, that costs follow the event, should apply. The bank should have its costs.

28 At the end of the hearing arrangements were made for the bank to provide Mr Salmon with a breakdown of the fees and charges which it sought to recover against him. That was done. I received a submission from Mr Salmon on 1 April 2009 by facsimile objecting to such costs and charges (MFI 2). The submission is in the nature of a series of assertions.

29 The certificate tendered by the bank stands as prima facie evidence of the amount outstanding, including the costs and charges, which I accept.

30 I therefore find that the plaintiff has established its claim. There should be judgment for the debt outstanding under the Guarantee. The amount owing as at 3 July 2007 was $3,670,602.92. Interest was payable as well as fees, costs and charges, as set out in Exhibits M and N.

Order.

31 I make the following orders:

1. There should be judgment for the plaintiff in the sum of $5,361,510.72.

2. The defendant should pay the plaintiff’s costs.

In terms of the mathematics, the slip rule applies.

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