Caratti v Zhou
[2024] WASCA 39
•23 APRIL 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT : THE COURT OF APPEAL (WA)
CITATION: CARATTI -v- ZHOU [2024] WASCA 39
CORAM: QUINLAN CJ
MITCHELL JA
SEAWARD J
HEARD: 13 MARCH 2024
DELIVERED : 23 APRIL 2024
FILE NO/S: CACV 116 of 2022
BETWEEN: ALLEN CARATTI
Appellant
AND
LIANGZHANG ZHOU
Respondent
ON APPEAL FROM:
Jurisdiction : SUPREME COURT OF WESTERN AUSTRALIA
Coram: ALLANSON J
Citation: ZHOU -v- CARATTI [2022] WASC 363
File Number : CIV 1390 of 2014
Catchwords:
Contract - Guarantee and indemnity - Where Investment Agreement provided for respondent to subscribe to redeemable preference shares in a company and for the company to redeem shares within a defined period - Where appellant guaranteed payment on demand of the amount payable by the company upon redemption - Where company's contractual obligation under the Investment Agreement was subject to an implicit requirement that the company was lawfully able to redeem the preference shares - Where respondent did not prove that the company had the funds to enable it to lawfully redeem the preference shares and so did not prove that the company was in breach of its contractual obligation to redeem the shares - Whether appellant's guarantee secured performance of the company's contractual obligation on default or payment of an amount irrespective of breach of a contractual obligation by the company - Whether a demand for payment which misstated the amount payable was a demand for the purposes of the guarantee
Legislation:
Corporations Act 2001 (Cth), s 254K (repealed)
Result:
Appeal dismissed
Category: B
Representation:
Counsel:
| Appellant | : | J T Schoombee & A P Rumsley |
| Respondent | : | E C Hensler |
Solicitors:
| Appellant | : | Alan Rumsley |
| Respondent | : | HopgoodGanim Lawyers |
Case(s) referred to in decision(s):
Barns v Queensland National Bank Ltd (1906) 3 CLR 925
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491
Citycorp Australia Ltd v Hendry (1984) 4 NSWLR 1
Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404
George 218 Pty Ltd v Bank of Queensland (No 2) [2016] WASCA 182; (2016) 313 FLR 287
George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434; (2015) 303 FLR 231
Lo Pilato v Kamy Saeedi Lawyers Pty Ltd [2017] FCA 34; (2017) 249 FCR 69
Pacreef Investments Pty Ltd v Pacific Biotechnologies Ltd [2022] VSC 56; (2022) 65 VR 405
Re Taylor; ex parte Century 21 Real Estate Corporation (1995) 130 ALR 723
Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689
JUDGMENT OF THE COURT:
Introduction
In 2010, the respondent (Mr Zhou) invested $1.2 million in Parliament Place Pty Ltd, a land development company, by subscribing to redeemable preference shares in that company. The investment was made under the terms of an Investment Agreement between Parliament Place and Mr Zhou dated 20 September 2010. Under the Investment Agreement, Parliament Place agreed to redeem the preference shares for an amount equal to their face value plus an amount equal to an annual return of 20% to the date of redemption. The redemption was to be within 13 months of receipt of the investment, subject to Parliament Place being able to elect to extend the redemption period for a further period of up to 6 months.
On or about 28 September 2010, Parliament Place, Mr Zhou and the appellant (Mr Caratti) entered into a Deed of Guarantee. The Deed of Guarantee related to a 'Redemption Payment', defined to mean:
the amount payable by [Parliament Place] upon redemption of [the 1,200,000 redeemable preference shares to be issued by [Parliament Place] to [Mr Zhou] at a face value of $1.00 each under the terms of the Investment Agreement], being the face value of [those redeemable preference shares] plus an amount equal to an annual return of 20% on that face value pro rata to the date of redemption.
Parliament Place did not redeem Mr Zhou's redeemable preference shares and was eventually placed into liquidation. On 28 February 2014, solicitors for Mr Zhou made a demand for the payment of money under the Deed of Guarantee. The amount of payment demanded was incorrect. Mr Caratti did not make any payment under the Deed of Guarantee, and Mr Zhou commenced proceedings in the General Division of this court for recovery of the Redemption Payment.
On 2 November 2022, the trial judge entered judgment for Mr Zhou against Mr Caratti in the sum of $1,513,909.11. This comprised $1.2 million plus approximately $260,000 (being an annual return of 20% over 13 months) plus pre-judgment interest, less the sum of $570,000 received from other defendants in settlement of Mr Zhou's claims against them. In entering judgment, the trial judge relevantly concluded:
1.Parliament Place did not breach its obligation to redeem the preference shares under the Investment Agreement when it was not shown that it had profits from which it could lawfully redeem the shares.[1]
2.Mr Caratti's liability was to pay on demand the amount that was payable on redemption if Parliament Place did not pay that amount in accordance with the Investment Agreement. Mr Caratti's liability did not depend on Parliament Place being in breach of the Investment Agreement by failing to pay that amount within the agreed time.[2] On the proper construction of the Deed of Guarantee, Mr Caratti was liable to pay the Redemption Payment, as defined, on demand.[3]
3.The demand for the incorrect amount did not invalidate the notice of demand, and the defence did not put the validity of the notice of demand in issue.[4]
[1] Primary decision [42].
[2] Primary decision [50] - [51].
[3] Primary decision [55].
[4] Primary decision [65] - [66].
Mr Caratti now appeals against the primary judgment on three grounds. The grounds of appeal raise the following issues (our answers to which appear in parenthesis):
1.On its proper construction, does the Deed of Guarantee oblige Mr Caratti to pay the Redemption Payment, as defined, on demand?[5] (Answer: yes)
2.Did Mr Zhou run his case at trial in a way that depended on him establishing a breach of the Investment Agreement before liability under the Deed of Guarantee could arise?[6] (Answer: no)
3.Did the error as to the amount claimed in the notice of demand mean that it did not operate as a demand giving rise to a payment liability under the Deed of Guarantee?[7] (Answer: no)
[5] Ground 1.2 and ground 2.
[6] Ground 1.1.
[7] Ground 3.
Contractual provisions
The parties' rights and liabilities at issue in the appeal arise under the following contractual provisions.
The Investment Agreement
The Investment Agreement was between Parliament Place and Mr Zhou. Mr Caratti was not a party to the Investment Agreement.
Clause 1.1 of the Investment Agreement relevantly provided for Mr Zhou to subscribe for 1,200,000 redeemable preference shares in Parliament Place for the sum of $1.2 million. This was defined to be 'the Redeemable Preference Shares' and 'the Investment'. The subscription was made for the purpose of facilitating the development of property in Southern River.
Clause 1.3 of the Investment Agreement made the following provision as to the terms of the Redeemable Preference Shares:
1.3The terms of the Redeemable Preference Shares shall be that:
1.3.1 the face value of each Redeemable Preference Share shall be one dollar (AU$1.00);
1.3.2 the Redeemable Preference Shares shall be redeemed for an amount equal to their face value of AU$1.00 (being AU$1,200,000 in total for the Investment) plus an amount equal to an annual return of 20% on their face value pro rata to the date of redemption of the Redeemable Preference Shares;
1.3.3 the Redeemable Preference Shares must be redeemed by [Parliament Place] within 13 months of receipt of the Investment, the date being at the sole discretion of [Parliament Place], provided that should the development of the Property be delayed for any reason beyond [Parliament Place's] direct control [Parliament Place] may at its election extend the period for a redemption for a further period of up to 6 months;
1.3.4 redemption of the Redeemable Preference Shares and payment of the amount due upon this (being the sum of the Investment plus an amount equal to an annual return of 20% on this sum) shall be paid in priority of any capital return to the other shares of [Parliament Place].
1.3.5 the Redeemable Preference Shares shall have no voting rights whatsoever concerning [Parliament Place].
By cl 2 of the Investment Agreement, the parties agreed that the Investment funds would be used solely to meet the consultants, construction and working capital costs for the development of the Southern River property.
Clause 4 of the Investment Agreement stated that:
[Mr Caratti] agrees to provide Mr Zhou with a deed of guarantee and indemnify for repayment of the Investment upon redemption of the Redeemable Preference Shares.
The Deed of Guarantee
The recitals to the Deed of Guarantee between Parliament Place, Mr Zhou and Mr Caratti state:
A. In consideration of [Mr Zhou] entering into the Investment Agreement [Mr Caratti] guarantees the Redemption Payment to [Mr Zhou].
B. The parties wish to document the terms of [Mr Caratti's] guarantee as set out in this Deed.
Clause 1 of the Deed of Guarantee contains the following definitions, stated to apply unless the context requires otherwise:
'Investment Agreement' means the agreement dated on or about the date of this Deed between [Mr Zhou] and [Parliament Place] under which [Mr Zhou] has subscribed for the Redeemable Preference Shares …;
'Redeemable Preference Shares' means the 1,200,000 redeemable preference shares to be issued by [Parliament Place] to [Mr Zhou] at a face value of $1.00 each under the terms of the Investment Agreement.
'Redemption Payment' means the amount payable by [Parliament Place] upon redemption of the Redeemable Preference Shares, being the face value of the Redeemable Preference Shares plus an amount equal to an annual return of 20% on that face value pro rata to the date of redemption.
Clause 3 of the Deed of Guarantee is the central operative provision expressed in the following terms:
(a) [Mr Caratti] unconditionally and irrevocably guarantees the due and punctual payment of the Redemption Payment to [Mr Zhou].
(b) If [Parliament Place] does not pay the Redemption Payment on time in accordance with the Investment Agreement [Mr Caratti] must pay the Redemption Payment to [Mr Zhou] on demand.
(c) [Mr Zhou] may make demand on [Mr Caratti] at any time following the Redemption Payment becoming due whether or not [Mr Zhou] has made a demand on [Parliament Place].
Clause 4 of the Deed of Guarantee acknowledges the Guarantee is a 'principal and independent obligation', and is 'not ancillary or secondary to another right or obligation'.
Clause 5 of the Deed of Guarantee provides Mr Zhou's rights and Mr Caratti's liability under the Guarantee 'will not be prejudiced or affected by', among other things:
(f) the fact that any obligation to be performed (including payment of monies) by [Parliament Place] under or in connection with the Investment Agreement may not be enforceable, may cease to be enforceable or may never have been enforceable or that any transaction affecting any obligation of [Parliament Place] under or in connection with the Investment Agreement is or was wholly or partially void, voidable or unenforceable;
…
(j) any fact, circumstance, legal disability or incapacity which would otherwise release [Parliament Place] from its obligations, whether express or implied, under the Investment Agreement[.]
By cl 6 of the Deed of Guarantee:
The Guarantee:
(a) is irrevocable and continuing and will remain in full force and effect until [Mr Zhou] has received the Redemption Payment in cleared funds; and
(b) will not be affected by any settlement or account, intervening payment, compromise, arrangement or anything else.
Under cl 9.6 of the Deed of Guarantee:
This Deed constitutes the entire agreement between the parties in connection with its subject matter and supersedes all previous agreements or understandings between the parties in connection with its subject matter.
Proper construction of the Deed of Guarantee
The Deed of Guarantee and the Investment Agreement were entered into at about the same time. The Investment Agreement is referred to in the Deed of Guarantee. Key definitions in the Deed of Guarantee operate by reference to provisions of the Investment Agreement. Counsel for Mr Caratti submit, and we accept, that in these circumstances it is appropriate to have regard to the text of both agreements and to interpret them in the manner in which a reasonable businessperson would have interpreted them, as well as in a manner than enables both agreements to operate in conformity with one another.[8]
[8] Appellant's submissions par 11, referring to Pacreef Investments Pty Ltd v Pacific Biotechnologies Ltd [2022] VSC 56; (2022) 65 VR 405 [379] (White AB 8 - 9). As to the principles of construction of commercial contracts generally, see Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42].
There was no challenge in this appeal to the trial judge's finding, in effect, that Parliament Place's obligation to redeem preference shares under cl 1.3 of the Investment Agreement was subject to an implicit requirement that it was lawfully able to do so. Under s 254K of the Corporations Act 2001 (Cth), as it stood at the relevant time, Parliament Place could only redeem the Redeemable Preference Shares out of profits or the proceeds of a new issue of shares made for the purposes of the redemption. Parliament Place's constitution incorporated these requirements.[9] There was no evidence in the primary proceedings of any profits or proceeds of new share issues which could be used to redeem Mr Zhou's preference shares. Therefore, the evidence in the primary proceedings did not establish that Parliament Place was in breach of the contractual obligation created by cl 1.3 of the Investment Agreement.
[9] Exhibit 5, clauses 4 and 5 (Green AB 111).
The critical constructional issue is then whether the Deed of Guarantee secures:
1.the performance by Parliament Place of the contractual obligation in cl 1.3 of the Investment Agreement; or
2.payment of an amount of money irrespective of whether or not Parliament Place is in breach of its contractual obligations.
In our view, the latter is the correct construction of the Deed of Guarantee.
Mr Caratti's central obligation is created by cl 3(b) of the Deed of Guarantee. This obligation arises if Parliament Place does not pay the Redemption Payment on time in accordance with the Investment Agreement. The Redemption Payment is the amount payable by Parliament Place upon redemption of the Redeemable Preference Shares. The time for that payment provided for in the Investment Agreement is within 13 months of receipt of the Investment, subject to Parliament Place electing to extend the period for up to an additional 6 months if development of the Southern River property is delayed for any reason beyond Parliament Place's direct control. The condition for the existence of Mr Caratti's obligation under cl 3(b) of the Deed of Guarantee is the failure of Parliament Place to make a payment within the time provided for by the Investment Agreement, rather than Parliament Place being in breach of a contractual obligation.
The condition for the existence of Mr Caratti's obligation under cl 3(b) of the Deed of Guarantee is satisfied in the present case. Parliament Place did not make the Redemption Payment within the time required by the Investment Agreement, which (in the absence of any evidence of Parliament Place electing to extend the time) was 13 months from the date of Investment.
The content of Mr Caratti's obligation under cl 3(b) of the Deed of Guarantee is to pay the Redemption Payment to Mr Zhou on demand. The Redemption Payment is the amount payable by Parliament Place upon redemption of Mr Zhou's Redeemable Preference Shares.
In terms, the Deed of Guarantee secures the amount payable upon redemption of the Redeemable Preference Shares rather than the performance of a contractual obligation by Parliament Place to redeem the shares.
Under cl 3(c) of the Deed of Guarantee, Mr Zhou may make demand on Mr Caratti at any time 'following the Redemption Payment becoming due'. The reference to the payment becoming 'due' is to the end of the period of time during which the Redeemable Preference Shares must be redeemed under cl 1.3.3 of the Investment Agreement. In the absence of an election by Parliament Place to extend the period for a redemption for a further period of up to 6 months, the Redemption Payment becomes 'due', for the purposes of the Deed of Guarantee, 13 months after receipt of the Investment.
Other provisions of the Deed of Guarantee tend to confirm that what is secured by the Deed of Guarantee is payment of the amount that would be payable by Parliament Place upon redemption of the Redeemable Preference Shares rather than the performance by Parliament Place of an obligation to redeem the shares:
1.Clause 3(a) provides that Mr Caratti guarantees the due and punctual payment of the amount payable by Parliament Place upon redemption of the Redeemable Preference Shares. This guarantees the payment of an amount payable upon redemption rather than an obligation to redeem the shares.
2.Clause 4 provides that the Guarantee is a principal and independent obligation. This counts against construing the obligation created by cl 3(b) as being dependent on a breach of an obligation of Parliament Place to redeem the shares.
3.Clause 5(f) and (j) relevantly provide that Mr Zhou's rights and Mr Caratti's liability under the Guarantee will not be prejudiced or affected by:
(a)the fact that Parliament Place's obligations under or in connection with the Investment Agreement may not be enforceable; or
(b)any circumstance which would otherwise release Parliament Place from its obligations under the Investment Agreement.
The support to be gained from cl 5 is limited, as it assumes Mr Caratti's liability.[10] However, the terms in which cl 5 is cast suggest that a deficiency in funds that Parliament Place can lawfully use to redeem the preference shares does not affect Mr Caratti's obligation to pay Mr Zhou the amount payable by Parliament Place upon redemption.
4.Clause 6 provides for the guarantee to remain in force until Mr Zhou has received the Redemption Payment in cleared funds. It does not provide for the guarantee to lapse if Parliament Place is not in a position to redeem the Redeemable Preference Shares by the due date, so that its failure to do so does not amount to a breach of the Investment Agreement.
[10] See Citicorp Australia Ltd v Hendry (1984) 4 NSWLR 1, 40 in relation to a similarly worded provision.
One factor that tends to support Mr Caratti's contention that the Deed of Guarantee secures the performance of an obligation is the description of the instrument, and the obligation created by the instrument, as a guarantee. The word guarantee ordinarily denotes the promise of one person to be answerable for the debt or obligation of another person if that other person defaults.[11] That is, a guarantor generally accepts a secondary obligation which arises only on default of a primary obligation.[12] However, as counsel correctly accepted, the description which the instrument gives itself, and the obligation it creates, is not determinative of its legal effect.[13] In the present case, cl 4 of the Deed of Guarantee makes it clear that the obligation it imposes is a primary obligation. When read as a whole, the Deed of Guarantee indicates that Mr Caratti's liability does not depend on Parliament Place being in breach of its contractual obligation under cl 1.3 of the Investment Agreement.
[11] See Lo Pilato v Kamy Saeedi Lawyers Pty Ltd [2017] FCA 34; (2017) 249 FCR 69[284].
[12] See Re Taylor; ex parte Century 21 Real Estate Corporation (1995) 130 ALR 723, 728.
[13] Appeal ts 31 - 32, 65.
A reasonable businessperson, considering the Deed of Guarantee as a whole in the context of the Investment Agreement, would understand it to be securing payment of an amount that would be payable by Parliament Place upon redemption irrespective of whether Parliament Place was in a position to redeem the shares.
There is nothing uncommercial about that construction, the practical effect of which is to secure repayment of Mr Zhou's $1.2 million investment with a return at a fixed rate. Contrary to Mr Caratti's submissions, the fact that the investment may also have facilitated Mr Zhou obtaining a visa does not alter this conclusion. Mr Zhou was not buying a visa, but rather was making an investment in Parliament Place in consideration for a promised return. Securing payment of that return was the means by which Parliament Place obtained the benefit of Mr Zhou's investment.
We also note that the focus of Mr Caratti's submission before the trial judge and in written submissions before this court was a contention that the guarantee only applied where there was a redemption by Parliament Place of the Redeemable Preference Shares. That argument receded during oral submissions before this court. The argument was without merit and was correctly rejected by the trial judge. The trial judge correctly held that the redemption of shares was constituted by the payment of the purchase price and the cancellation of the shares. Nor do we accept Mr Caratti's oral submission, advanced at one point in the appeal, to the effect that the reference is to a decision to redeem the shares.[14] While there may be steps internal to the management of the redeeming corporation which precede the redemption of shares, such as a resolution of the corporation's board deciding that there should be a redemption, the shares are not redeemed until the purchase price is paid and the shares cancelled. The Deed of Guarantee would be of no utility if it only secured payment when there was a redemption (which necessarily involves payment).
[14] Appeal ts 17, 19.
Scope of Mr Zhou's case in the primary proceedings
We do not accept that Mr Zhou's case as advanced in the primary proceedings depended on establishing that Parliament Place breached cl 1.3 of the Investment Agreement. While Mr Zhou advanced a case that there was such a breach by Parliament Place, his claim for payment under the Deed of Guarantee was not presented in such a way that made breach of the Investment Agreement an essential component.
Paragraph 10(a) and 10(b) of the Statement of Claim pleaded that:[15]
10On its proper construction, the Deed of Guarantee included, inter alia, terms to the following effect:
(a) clause 3(a) – [Mr Caratti] unconditionally and irrevocably guaranteed the due and punctual payment of the Redemption Payment to [Mr Zhou];
(b) clause 3(b) – if Parliament Place did not pay [Mr Zhou] the Redemption Payment on time and in accordance with the Investment Agreement, [Mr Caratti] must pay [Mr Zhou] the Redemption Payment on demand,
(together the Guarantee)
[15] Further Amended Substituted Statement of Claim dated 25 May 2020 (Blue AB 21).
Paragraph 13 of the Statement of Claim pleaded breach of the Investment Agreement by Parliament Place:[16]
In breach of the terms of the Investment Agreement pleaded ... above, Parliament Place failed to pay [Mr Zhou] the Redemption Payment or any monies at all within the Payment Time, that is by 27 April 2012, being 19 months from the date the Investment was received.
[16] Further Amended Substituted Statement of Claim dated 25 May 2020 (Blue AB 23).
Paragraphs 19 - 21 of the Statement of Claim, shorn of particulars, pleaded:[17]
19By reason of the matters pleaded in paragraphs 10(a) to 10(c) and 13 above, [Mr Zhou] was entitled to demand and to receive payment of the Redemption Payment from [Mr Caratti].
20On or about 28 February 2014, pursuant to clause 3(c) of the Deed of Guarantee, [Mr Zhou], through [his] solicitors, demanded payment of the Redemption Payment from [Mr Caratti] …
21In breach of the terms of the Deed of Guarantee pleaded in paragraphs 10(a) to 10(b) above, [Mr Caratti] has failed to pay to [Mr Zhou] the Redemption Payment, or any monies at all.
[17] Further Amended Substituted Statement of Claim dated 25 May 2020 (Blue AB 24 - 25).
We do not read this pleading as confining Mr Zhou's case to one which depends on establishing the breach of the Investment Agreement pleaded at par 13 of the Statement of Claim. While the non-payment was pleaded to be a breach, the pleaded material facts included the effect of the Deed of Guarantee and the failure by Parliament Place to pay Mr Zhou the Redemption Payment.
In any event, it was apparent from the opening submissions of Mr Zhou's trial counsel that his case did not depend on establishing a breach of the Investment Agreement by Parliament Place. The simplicity of Mr Zhou's case was captured in his counsel's submission that:[18]
[T]here was a redemption payment that was guaranteed by [Mr Caratti]. It hasn't been paid by [Mr Caratti]. It has been demanded by [Mr Zhou][19] in circumstances where [Mr Zhou] was entitled to make that demand. It remains unpaid.
[18] Primary ts 65 (Green AB 10).
[19] While counsel referred to the defendant rather than the plaintiff in the transcript, it is clear from the context that she was referring to the plaintiff.
Mr Caratti's counsel clearly understood the simplicity of Mr Zhou's case at trial, although he described it as a 'fallacious shortcut' that had 'not been properly explained or even, in a sense, pleaded'.[20] The issue of whether payment was due under the Deed of Guarantee irrespective of there being a breach of the Investment Agreement by Parliament Place was joined at trial.
[20] Primary ts 76 (Green AB 21).
For these reasons, the basis on which the primary judge found against Mr Caratti did not depart either from Mr Zhou's pleaded case or the issues joined by the parties at trial.
The demand
It is common ground that, under cl 3(b) of the Deed of Guarantee, a demand by Mr Zhou is required before Mr Caratti is obliged to pay the Redemption Payment under that clause. At issue is whether a letter sent by Mr Zhou's solicitors to Mr Caratti on 28 February 2014 constitutes a demand for the purposes of cl 3(b) of the Deed of Guarantee.
The substantive part of the letter of 28 February 2014 was expressed in the following terms:
We refer to the [Investment Agreement] and the [Deed of Guarantee].
Pursuant to the Investment Agreement, our client was to be repaid his investment of $1,200,000 together with an annual return of 20% and therefore, as at 27 February 2014, our client is owed the sum of $1,885,485.
The amount of $1,885,485 is comprised of:
•the principal amount of $1,200,000; and
•the annual return of 20% per annum, which as at 27 February 2014, is the sum of $685,485.
Pursuant to clause 3 of the Deed of Guarantee, you unconditionally and irrevocably guaranteed the due and punctual payment of the moneys payable by [Parliament Place] to our client and such amount, pursuant to clause 3(b) of the Deed of Guarantee, is payable on demand.
On behalf of our client, we demand payment of $1,885,485 within 7 days, together with the annual return of 20% from 27 February 2014 to the date of payment.
Should payment not be made before 7 March 2014, our client will institute proceedings without further notice.
It is common ground that the amount of the annual return specified in this letter is incorrect. It is not clear how the amount was calculated, but the letter appears to incorrectly assume that the 20% rate of return is to be applied after the Redemption Payment is due and to continue until payment is made.
In George 218 Pty Ltd v Bank of Queensland Ltd,[21] Mitchell J observed:
The strictness with which courts construe contracts of guarantee has not been applied to notices of demand for payment of a guaranteed debt, where the making of a demand is a condition for the existence of the collateral liability under the guarantee. For example, it is established that a notice of demand for payment of a debt is not invalid merely because it demands more than is due and, depending on the circumstances, may be valid even if it does not specify the amount due at all.[22] Absent some special requirement in the relevant contract, a notice of demand will generally be valid if it specifies with sufficient particularity the debt of which payment is demanded, notwithstanding an error or omission in the description which does not materially mislead the recipient of the nature of the debt demanded.[23] In Barns, a failure to refer to one of two mortgages under which a power of sale was exercised did not invalidate the demand.
[21] George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434; (2015) 303 FLR 231 [262]. This decision was affirmed by this court in George 218 Pty Ltd v Bank of Queensland (No 2) [2016] WASCA 182; (2016) 313 FLR 287, although consideration of the quoted passage did not arise on appeal.
[22] Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491, 503 - 504.
[23] Barns v Queensland National Bank Ltd (1906) 3 CLR 925, 935; Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404, 413.
We agree with these observations. Counsel for the appellant contended that this court should not follow this view, but in support of the submission cited only the decision in Tricontinental Corporation Ltd v HDFI Ltd.[24] That case is not inconsistent with the passage just quoted. It concerned the significance of what was clearly a failure to comply with requirements for the issue of a notice demand which was held by the majority of the court to be a condition precedent to the surety's liability arising. The question in the present case is not concerned with the effect of a failure to make the demand required by cl 3(b) of the Deed of Guarantee. As noted above, it is common ground that a demand is required before Mr Caratti's liability to make the Redemption Payment arises. Rather, the question in this case is whether the letter of 28 February 2014 is a demand for the purposes of cl 3(b) of the Deed of Guarantee.
[24] Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689.
Clause 3(b) simply provides for a demand that Mr Caratti pay the Redemption Payment, without specifying any form or content of the demand. There is no express requirement for the demand to specify the amount of the Redemption Payment and we see no basis for implying such a requirement. In our view, communication expressed in terms of a demand that Mr Caratti pay the Redemption Payment under cl 3(b) of the Deed of Guarantee will be a demand for the purposes of that clause.
The letter of 28 February 2014 clearly identifies cl 3(b) of the Deed of Guarantee as the source of Mr Caratti's obligation. It is in substance a demand that Mr Caratti pay the Redemption Payment under cl 3(b) of the Deed of Guarantee. The letter was not required to specify the amount of the payment required, and the fact that the letter states the wrong amount does not deprive it of the character of a demand that Mr Caratti pay Mr Zhou the Redemption Payment. The terms of the letter left no room for doubting that Mr Zhou was demanding payment of the Redemption Payment even though the amount of that payment was miscalculated. It was a demand within the meaning of cl 3(b) of the Deed of Guarantee that gave rise to Mr Caratti's obligation to pay the Redemption Payment to Mr Zhou.
We note that Mr Caratti also challenges the trial judge's finding that Mr Caratti's defence did not put the validity of the notice of demand in issue.[25] Mr Caratti's counsel opened the defence by stating he 'worked on the old-fashioned principle that if you don't refer to things, they're not part of your case'.[26] The written and oral submissions advanced on Mr Caratti's behalf did not contend that the letter of 28 February 2014 was not a valid demand because it specified the wrong amount. In those circumstances, the trial judge's conclusion as to the scope of the defence was reasonable. In any event, for the reasons explained above, the point has no merit even if it was raised as part of the defence case.
[25] Primary decision [66].
[26] Primary ts 58 (Green AB 3).
Orders
For the above reasons, none of Mr Caratti's grounds of appeal are established. The appeal should be dismissed.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
KP
Associate to the Hon Justice Mitchell
23 APRIL 2024