Caratti v Zhou - [2024] WASCA 39

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Corporations Act 2001 (Cth), s 254K (repealed)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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Caratti v Zhou

Details

AGLC: Caratti v Zhou [2024] WASCA 39
Case: [2024] WASCA 39
Decision Date: 23 APRIL 2024

CaseChat Overview and Summary

The case of Caratti v Zhou involved a dispute regarding a guarantee and indemnity agreement. The appellant, Caratti, had guaranteed the payment of an amount payable by a company upon the redemption of preference shares. The respondent, Zhou, claimed that Caratti was liable for the redemption payment as the company had failed to redeem the shares within the defined period. The central legal issues were whether Caratti'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, and whether a demand for payment that misstated the amount payable constituted a valid demand under the guarantee. The Court of Appeal held that the guarantee was triggered by a demand for payment, regardless of the accuracy of the amount specified in the demand. The Court found that the letter of 28 February 2014, which misstated the amount payable, was nonetheless a valid demand that triggered Caratti's liability under the guarantee.

The Court of Appeal examined the terms of the guarantee and the nature of the demand required to trigger Caratti's liability. The guarantee stipulated a demand for payment of the redemption amount, without specifying any particular form or content for the demand. The Court held that the demand did not need to specify the exact amount of the redemption payment, and that a miscalculation of the amount did not invalidate the demand. The Court noted that the letter of 28 February 2014, while stating the wrong amount, was nonetheless a demand that Caratti pay the redemption payment as specified in the guarantee. The Court concluded that the letter was a valid demand that triggered Caratti's obligation to pay the redemption amount to Zhou. The Court also found that Caratti's defence did not challenge the validity of the demand on the basis of the incorrect amount, and that the trial judge's conclusion on this point was reasonable.

The Court of Appeal upheld the trial judge's decision that Caratti was liable to pay the redemption amount to Zhou. The Court found that the guarantee was triggered by the demand in the letter of 28 February 2014, and that the misstatement of the amount did not invalidate the demand. The Court rejected Caratti's argument that the guarantee only applied if the company was in breach of its contractual obligation to redeem the shares. The Court held that the guarantee was triggered by the demand for payment, regardless of whether the company was in breach of its contractual obligation. The Court of Appeal therefore dismissed Caratti's appeal and affirmed the trial judge's decision that Caratti was liable to pay the redemption amount to Zhou.

Orders

Orders of the court

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Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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).