Chaudhary v Siefert
[2011] VCC 1435
•21 December 2011
| IN THE COUNTY COURT OF VICTORIA | Revised |
(Not) Restricted
AT MELBOURNE
CIVIL DIVISION
Case No. CI-10-06019
| HEMANT CHAUDHARY | Plaintiff |
| v | |
| BERNHARD ULRICH SIEFERT | Defendant |
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| JUDGE: | HIS HONOUR JUDGE ANDERSON |
| WHERE HELD: | Melbourne |
| DATE OF HEARING: | 5 & 6 December 2011 |
| DATE OF JUDGMENT: | 21 December 2011 |
| CASE MAY BE CITED AS: | Chaudhary v Siefert |
| MEDIUM NEUTRAL CITATION: | [2011] VCC 1435 |
REASONS FOR JUDGMENT
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| Catchwords: | Guarantee – Borrower to provide security to lender – Alleged failure by lender to perfect and maintain the security – Whether condition precedent to enforcement of guarantee – Security released by lender – Interest payable in the event of default under the loan agreement |
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| APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr N Campbell | Heinz and Partners |
| For the Defendant | Mr A Sandbach | Simon A Nixon |
| HIS HONOUR: |
1 Bernhard Siefert is a property developer. In June 2010, he needed short-term Investments Pty Ltd (TWJ). His accountant, Kevin Lucas, arranged for finance to be obtained from the Hemant Chaudhary Superannuation Fund. The plaintiff, Dr Chaudhary was the trustee of the fund. The parties executed a loan deed on about 15 June 2010, Dr Chaudhary as trustee for the fund as lender, TWJ as borrower and Mr Siefert as guarantor. TWJ borrowed $550,000 repayable on 21 September 2010. Interest of 10 per cent per quarter was payable “in advance on the signing of the
agreement”.
2 Pursuant to the agreement, the borrower was to provide “security” for the loan. This was to be by way of:
“i A second ranking registered mortgage over the Land [167 Lower
Heidelberg Road, East Ivanhoe] provided by the borrower in favour of
the lender.ii A second ranking registered Fixed and Floating Charge over all of the
assets and undertaking of the borrower”.
3 On 18 June 2010, Dr Chaudhary transferred the net sum of $500,000 to TWJ. The due date for repayment of the loan passed. Following correspondence between the parties, Dr Chaudhary’s solicitor on 9 November 2010 sent a letter to Mr Siefert
demanding “immediate payment of the principal and interest to date”, but stating that Dr Chaudhary “would be prepared to renew the loan for a further three months on the
same terms and conditions as the original agreement”.
4 On 25 November 2010, Dr Chaudhary’s new solicitors issued a statutory demand to TWJ for payment of the debt. On 17 December 2010, the writ in the present proceeding was issued. Also on that day, a meeting of the members of TWJ was held. Mr Siefert, as the sole shareholder, was the only member of the company and he gave evidence that he attended the meeting by telephone from the United States. The meeting appointed Andrew Dunner as liquidator of the company. Mr Siefert had ceased to be a director of the company on 22 September 2010.
5 The security anticipated by the loan deed had not been put in place although caveats were lodged on Dr Chaudhary’s behalf as follows:
a.
On 23 November 2010, in respect of the property owned by TWJ at 167 Lower Heidelberg Road, East Ivanhoe, claiming an interest “as
mortgagee pursuant to a mortgage dated 21 June 2010”.
b. On 14 December 2010, in respect of a property owned by TWJ at 40 Yarralea Street, Alphington, claiming an “interest as chargee pursuant to a written agreement dated 15 June 2010”. 6 In May 2011, Dr Chaudhary and Mr Dunner executed a deed of agreement in relation to the property at 167 Lower Heidelberg Road, East Ivanhoe. Dr Chaudhary agreed to withdraw his caveat “provided that it is acknowledged that he shall have an interest
in the net proceeds accruing from the sale of the land, equivalent to the equitable
interest that he had in the land prior to it’s sale”. Monies were agreed to be paid into a bank account to be invested but not to be “released to any person other than with the agreement of the parties hereto or pursuant to a court order”.
7 In June 2011, the parties to the present proceeding mediated their dispute. The liquidator, Mr Dunner, was invited to attend. Subsequently, a further deed of agreement was executed by Dr Chaudhary and Mr Dunner on 2 August 2011 in relation to, first, the money held in the bank account following the May agreement and, secondly, in relation to the property at 40 Yarralea Street, Alphington.
8 The August agreement provided that:
a.
“The money standing in the controlled monies account including any interest earned are hereby released to Chaudhary as his absolute property”.
b. Dr Chaudhary was to provide “a withdrawal of the Alphington caveat and acknowledges that he has no secured interest in the Alphington land”.
c.
Dr Chaudhary was entitled to “prove as an unsecured creditor in a liquidation of TWJ for the balance of loan monies payable to him” and would discontinue the proceeding he had commenced against TWJ.
d.
“The signing of this agreement is without prejudice to Chaudhary’s right to maintain and pursue” the present proceeding against Mr Siefert.
9 The issues raised in the present proceeding are:
a.
Whether the borrower’s agreement to provide security pursuant to the loan deed of 15 June 2010 was a condition precedent to the obligations of the guarantor pursuant to the guarantee and indemnity provisions of the deed.
b.
Alternatively, whether the plaintiff was under an equitable duty to maintain the security.
c.
Whether Mr Siefert was discharged from any liability to Dr Chaudhary under the guarantee “to the extent of the security over the Alphington land released by him by entering the deed made on 2 August 2011”.
d.
Whether Dr Chaudhary was under a duty to “perfect the security that he obtained or was provided by the borrower” by registering a second mortgage over the land at 167 Lower Heidelberg Road, East Ivanhoe, and by obtaining and/or registering a second ranking registered fixed and floating charge over all the assets and undertaking of the borrower.
e.
Whether Mr Siefert was prevented by waiver or estoppel from relying upon any failure by Dr Chaudhary to perfect or maintain the security to be provided by the borrower pursuant to the deed, dated 15 June 2010.
f.
Whether, if it were held that Mr Siefert had defaulted under the guarantee or was liable to indemnify Dr Chaudhary, “the only interest payable under the
deed was interest in the sum of $50,000 to be paid in advance on the signing
of the agreement”.
Provision and maintenance of security
10 Clause 4 of the loan deed dated 15 June 2010 provided in relation to “security” as follows:
“4.1 Consideration The borrower has requested the lender to advance the loan to
the borrower and the lender has agreed to do so in
consideration of the borrower’s agreement to provide the
security.4.2 Security The borrower agrees:
(a) the security secures to the lender the prompt payment of all money now payable and which becomes payable by the borrower to the lender; (b) that the borrower will promptly sign all documents and do all things that the lender may from time to time require in order to effect, perfect or complete the provisions of this deed and any action of the lender contemplated by this deed including the registration of the security. … 4.5 Costs and Expenses
(a) the borrower agrees to pay or reimburse the lender on demand for; (i) costs, charges and expenses of making, enforcing and doing anything in connection with the security, including all costs actually payable by the lender to legal representatives; and
(ii) all taxes (except income tax) which are payable in connection with the security or any payment, receipt or other transaction contemplated by the security”.
11 The loan deed provided in relation to the “guarantee and indemnity” as follows:
“6.1 Consideration The guarantor has requested the lender to advance the loan to
the borrower and the lender has agreed to do so in
consideration of this guarantee and indemnity.6.2 Guarantee The guarantor guarantees to the lender the prompt payment of
all money now payable and which becomes payable by the
borrower to the lender. The lender may immediately recover
the money from the guarantor as a liquidated debt without first
commencing proceedings or enforcing any other right against
the borrower or any other person.6.3 Indemnity If the borrower is not bound by some or all of its obligations under this deed, the guarantor agrees, by way of indemnity and principal obligation, to pay to the lender the amount which
would have been payable by the guarantor to the lender under
the guarantee in clause 6.2 had the borrower been bound.… 6.5 Matters not affecting guarantor’s liability The guarantor’s liability under clauses 6.2 and 6.3 is not
affected by:
(a)
the granting of time, forbearance or other concession by the lender to the borrower;
(b)
any delay or failure by the lender to take action against the borrower;
(c)
an absolute or partial release of the borrower or a compromise with the borrower;
(d)
a variation of the terms of credit given to the borrower by the lender;
(e)
the termination of credit to the borrower by the lender; or
(f)
the fact that any agreement between the lender and the borrower is wholly or partially void, voidable or unenforceable”.
12 Following the execution of the loan deed on 15 June 2010, Dr Chaudhary did not take any steps to require the borrower, TWJ, to sign documents necessary “in order
to effect, perfect or complete…any action of the lender contemplated by this deed
including the registration of the security”.
13 The following steps were undertaken by the parties which have some relevance to the question of security:
a. by letter to Dr Chaudhary dated 15 June 2010, Mr Siefert, as a Director of TWJ, gave his “undertaking that I will not deal with the title [to 167 Lower Heidelberg Road, East Ivanhoe] outside of this transaction to register your security interests. I have included a current balance of the current mortgage and the mortgage limit as is evidenced by the bank’s email to me of this date.
I undertake not to seek any increase in this mortgage facility”;
b. a report and valuation dated 16 June 2010 was sent to Dr Chaudhary of the property at 167 Lower Heidelberg Road indicating a market value of $1,450,000; c. on 19 August 2010, the plaintiff’s solicitors, Curwen-Walker & Co, wrote to Mr Siefert’s accountant, Kevin Lucas & Associates, as follows: “We refer to funds of $500,000 advanced in June 2010 and note with concern that the mortgage
is still not registered. Please explain the delay and advise when registrationwill be completed”.
d. Mr Siefert said in evidence that he was in the United States from 24 September until 23 December 2010; e. on 8 October 2010, Mr Siefert sent an email to Dr Chaudhary copied to Mr Lucas as follows: “Further to my conversation with Kevin Lucas a couple of days ago, I wish to confirm his conversation with you that whilst the original loan has expired, and as yet the interest nor principal advance has not been paid; I put to him that until such time as the facility has been prepaid, any
outstanding amounts will accrue an interest rate calculated at 15% per annum
from the original due date to the repayment date”;
f. Dr Chaudhary responded on 11 October 2010 as follows: “Your offer (8/10/2010) is unacceptable. I require the loan to be paid in full as per the
loan agreement or alternatively I would consider an extension of the loan for a
further three months on the same terms, conditions and interest rate.
Furthermore, I would require a new contract to be drawn by my solicitor atyour expense”;
g.
on 9 November 2010, Curwen-Walker & Co wrote to Mr Siefert at 14 Irvine Road, Ivanhoe as follows: “Re second mortgage – TWJ Investments Pty Ltd.
We are instructed that you are now in breach of the loan agreement entered into with our client as you failed to repay the loan amount and interest when due. Our client demands immediate repayment of the principal and interest to
date. He would be prepared to renew the loan for a further three months on
the same terms and conditions as the original agreement. Failure to repay
the loan or provide a new loan agreement on acceptable terms within seven
days hereof will result in recovery action being commenced without furthernotice”;
h. on 12 November 2010, Mr Siefert responded directly to Dr Chaudhary as follows: “Thank you for your email below. I am currently in the United States on business and will be returning to Australia in a little over a week’s time. I will address your issues with you then. It may be worthwhile to have a chat over the telephone with you rather than by email to come to resolve your
concerns. However in the meantime I have received in the post a letter from Curwen-Walker, your solicitor, threatening legal action. Whilst you are free to take whatever action you deem appropriate, I do not believe either of us wish
to be adversarial. I look forward to speaking with you in the near future”;
i. on 16 November 2010 Curwen-Walker & Co wrote to Mr Siefert as follows:
“We refer to previous correspondence and request that all further
correspondence regarding this matter be directed care of this office. Do not
contact our client direct. We note our client’s mortgage is not registered. This
must be done without further delay and before any consideration will be given
to extending the term of the loan. If you pay the overdue interest and accept
the same terms and conditions our client would consider extending the date
for repayment by three months to 31 December 2010. Otherwise recoveryaction will commence”;
j.
on 25 November 2010 Dr Chaudhary’s new solicitors, Heinz & Partners, served on TWJ a creditor’s statutory demand for payment of debt and supporting affidavit. On 7 and 8 December 2010 Mr Siefert sent emails to Dr Chaudhary. Mr Siefert wished to communicate directly with Dr Chaudhary. He offered to increase the interest payable whilst the monies due under the loan deed were outstanding to 20% per annum. He noted that “there is no dispute over the quantum of what was previously agreed”.
14 Heinz & Partners lodged caveats in respect of the properties at 167 Lower Heidelberg Road and 40 Yarralea Street, Alphington. On 17 December 2010, TWJ was wound up by the voluntary appointment of a liquidator by Mr Siefert as the sole shareholder of the company.
15 Mr Siefert said in evidence that he did not see the letter dated 19 August 2010 from Curwen-Walker & Co to Kevin Lucas & Associates until “later” as he “was overseas”. He said that “to the best of my knowledge” he only saw the letter dated 9 November 2010 from Curwen-Walker & Co to him “after I had returned to Australia”. In cross- examination, Mr Siefert said that the letter dated 9 November 2010 “was brought to my attention”. His explanation for the discrepancy in his evidence was that there was a “distinction between seeing a letter and having it referred to his attention”.
16 He said the letter dated 16 November 2010 from Curwen-Walker & Co to him, which noted that “our client’s mortgage is not registered” was “brought to my attention”, although no response was made. He said, “It is not the borrower who produces the documents; how can I take action?” Later he suggested that if the mortgage had been provided, the borrower would have carried out its obligations.
17 Mr Siefert said that although he resigned as a Director of TWJ on 22 September continued to act on behalf of the company as though he were still a director. Mr Siefert said that he was aware after TWJ was liquidated that his solicitor, Mr Nixon, was acting both for himself and for the liquidator, Mr Dunner. He said however that he had “had no discussions about the deed of agreement dated August 2011 with Mr Nixon”.
18 Mr Siefert’s evidence was not satisfactory. He was argumentative in his responses and justified what appeared to be inconsistent responses by drawing distinctions that were, in my view, untenable. In the absence of supporting evidence from the contemporaneous documents, I would not accept his oral evidence and specifically his assertion that, if the mortgage documents had been provided to the company by the lender, “the borrower would have carried out its obligations”.
19 I consider that the responses by Mr Siefert to the correspondence sent to him and Mr Lucas between August and November 2010, was indicative of a general lack of cooperation on his part.
Whether the provision of security was a condition precedent to the Guarantor’s liability
20 Generally, a duty is imposed upon a lender, or other creditor, to perfect or maintain a security granted by the borrower, or principal debtor. In Williams v Frayne (1937) 58 CLR 710 at 738, Dixon J said:
“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”.
21 However, there may be cases “in which the guarantee is so drawn as to exclude the use of such a defence” (an implied condition that “the efficacy of the guarantee depended upon the creditors troubling to perfect the security”). Also, the defence may not be available in “a case in which the failure to perfect the security was not the fault of the creditor”. See Kwan; ex parte Hastings Deering Ltd (1987) 15 FCR 264 at 267 per Pincus J.
22 Plaintiff’s counsel, Mr Campbell, submitted that upon a proper construction of the deed’s guarantee and indemnity provisions, any duty to perfect and maintain the securities was excluded. Mr Campbell relied particularly upon clauses 6.2, 6.3 and
6.5 of the loan deed. Before examining those clauses I note that:
a. Clause 4.1 states that, “The borrower has requested the lender to advance the loan to the borrower and the lender has agreed to do so in consideration
of the borrower’s agreement to provide the security” (emphasis added).
b. In clause 6.1 it is noted that, “The guarantor has requested the lender to advance the loans to the borrower and the lender has agreed to do so in
consideration of this guarantee and indemnity” (emphasis added).
23 Clause 6.2 entitles the lender to “immediately recover the money from the guarantor
as a liquidated debt without first commencing proceedings or enforcing any other
right against the borrower or any other person”. The guarantor’s obligation to make
payment under the guarantee is therefore not contingent upon the plaintiff first
realising any security he holds for the indebtedness, for example, by way of mortgage
or charge over the principal debtor’s assets. In clause 6.2, the guarantor’s liability is
expressed quite independent of, and in no way effected by, other security held by the
lender.24 Clause 6.3 provides for an indemnity, with the guarantor’s obligations expressly stated to be “by way of indemnity and principal obligation”. The guarantor has a direct liability as a principal debtor and, it was submitted, is not discharged by the
failure to perfect or maintain a security, unless that is expressly stipulated in the
agreement.25 Clause 6.5 of the deed expressly states that the guarantor’s liability under clauses 6.2 and 6.3 will not be affected in the circumstances set out in sub-paragraphs (a) to (f). Mr Campbell noted that these included:
a.
Where the lender made a concession to the borrower, for example not requiring the registration of securities (sub-clause (a)).
b.
The lender failing or delaying action against the borrower in reliance upon the securities (sub-clause (b)).
c.
A partial or absolute release of the borrower from compliance with the securities (sub-clause (c)).
d.
If the agreement requiring registration of a security was void or unenforceable against the borrower (sub-clause (f)).
26 In New Zealand Bloodstock Leasing Limited v Jenkins (unreported High Court of New Zealand 19 April 2007), the Court considered whether the plaintiffs’ failure to register a security interest under the relevant legislation discharged the guarantor’s
obligations in respect of the indebtedness of the principal debtor. The relevant
agreements considered by the High Court contained provisions analogous to clauses
6.2, 6.3 and 6.5 in the present agreement.27 Clause 2 (similarly with clause 6.2 in the present deed) provided that “as between the
guarantor and the creditor the guarantor may for all purposes be treated as the
borrower”. The High Court of New Zealand, at paragraph 73, stated:
“Clause 2 deals with how the creditor is required to treat the guarantor, in
particular when attempting recovery of the principal debt. Although directed to procedural matters rather than the extent of liability, this clause is consistent with an interpretation of the guarantee, that it was
intended that as between the guarantor and the creditor, the relationship
shall be that of principal debtor and creditor”.
28 Clause 7 of the relevant agreement before the High Court provided that:
“This guarantee shall be a principal obligation and shall not be treated as
ancillary or collateral to any other obligation howsoever created or
arising and in particular shall be independent of and be no way affected
by any other security”.
29 At paragraph 71, the High Court said:
“This is an amplification of the effect of the principal debtor provision. It
clearly means at least that the obligations of the guarantor to pay under
the guarantee is not contingent upon the creditor first realising any
security it holds for the indebtedness; a principle that is part of the
general law of guarantee … Clause 7 is therefore widely enough drawn
to have the effect the plaintiff’s contend for, precluding any discharge of
the guarantors’ liability by reason of NZB Finance’s failure to perfect
security”.
30 Clause 1 of the relevant agreement before the High Court provided that:
“No waiver, release, delay, granting of time or other indulgence, variation or modification of these obligations given by the creditor to the borrower … shall release, prejudice or affect the liability of the guarantor as a
guarantor or as indemnifier”.
31 At paragraph 127, the Court concluded that:
“There was no such condition or condition precedent to the finance
guarantees that any security interest that NZB Finance [the lender] was
contractually entitled to would be perfected, or would be first ranking”.
32 At paragraph 75, the High Court referred to an earlier New Zealand decision of Orme v De Boyette [1981] 1 NZLR 576 where, in relation to what was described as “the principal debtor clause”, the Court stated that:
“It is perhaps more common than not, for a party who guarantees a debt to be made a principal debtor as against a creditor although he remains a surety as against the person whose debt he guarantees. Such an
arrangement is commonly entered into where the creditor wishes to
avoid the technical rules relating to contracts of suretyship under which
the surety may become discharged from liability in various
circumstances. In such an event the transaction takes effect according
to its terms and the creditor is entitled to treat the surety as a principal
debtor in every respect”.
33 A similar conclusion was reached in the decision of the Queensland Court of Appeal in The Fletcher Organisation Pty Ltd v Crocus Investments Pty Ltd [1988] 2 Qd R 517. Shepherdson J cited the statement in Halsbury’s Laws of England 4th Edition Volume 20 at para. 283, the last paragraph of which reads:
“Where the surety has been converted into a principal debtor, the
defence of discharge by loss of securities is no longer available to him.”
34 Shepherdson J, at page 527, stated:
“I have come to the firm view that in clause 6 [which said “the mortgagee
shall be at liberty to act as though the guarantor were the principal
debtor”] the second defendant [the surety] agreed to be sued as if he
were the principal debtor and he agreed that the plaintiff [the mortgagee]
would not be subject to special restrictions imposed on it as creditor
including his right analogous to marshalling of securities … and his right,
assuming he did have it, of requiring the plaintiff to obtain and retain all
securities listed in clause 6 of the heads of agreement”.
35 Defendant’s counsel, Mr Sandbach, relied upon the decision of the New South Wales Court of Appeal in James v Surf Road Nominees Pty Ltd [2004] NSWCA 475. The Court of Appeal considered a real estate business venture in which the unit holders granted a mortgage of their units. The issue for determination was whether there was an implied covenant in the deed of guarantee “that the securities be maintained”, and that otherwise the guarantee could not be enforced. The deed provided that:
a.
“The unit holders have agreed to grant this mortgage of their units…in support of the obligations hereunder of the unit holders, the guarantor and the
indemnifying parties”;
b. the unit holders, the guarantor and the indemnifying parties “jointly and severally” provided the guarantee and indemnity to the investors; c. the units of the unit holders were specifically charged “with the due performance” of the “obligations of the unit holders, the guarantor and the indemnifying parties”; d. the unit holders were required to deliver the certificates for their units “as security for the obligations”. 36 The Court of Appeal stated at paragraph 75 that, “The mortgage was effected by
delivery of all of the scrip. There was no provision for release of any of the scrip and
the only entitlement to deal with the scrip was upon default by the exercise of thepower of sale. That right was vested in the investors”. At paragraph 76, the Court
held that “the effect of these provisions in our opinion was that the security was to bemaintained and that there was no entitlement in the investors, who had the benefit of the security, to dispose of the security other than by way of exercise of their power of sale or to come to any arrangement in respect of the security with one of the security owners to the exclusion of the other…The security was to be maintained for that
purpose [the power of sale] and that purpose only, unless and until the principal of
obligation under the deed of guarantee was satisfied”.37 In my view, the circumstances of that case, including the provisions in the deed, can be distinguished from the present case. The provision of security was directly related to the obligations of the relevant parties including the guarantor and the indemnifiers and the security was only to be applied as specifically provided for by the deed.
38 Section 263 of the Corporations Act 2001 provides that, “Where a company creates a
charge, the company must ensure that there is lodged, within 45 days after the
creation of the charge”, a notice in the prescribed form setting out particulars of the
charge.39 In Commonwealth Bank of Australia v Anand [2011] NSWSC 613, Hidden J considered whether a failure by a bank to register an equitable mortgage by a company over the whole of its assets entitled the guarantor to a complete release from liability. At para. 47, Hidden J concluded that even if he “were to accept that it
was a condition of the loan agreement that CBA registered the charge to ensure its
security, a notion that such a condition was in some way imported into the guaranteemust be rejected”.
40 Hidden J accepted the bank’s submission “that it was Mr Anand [the guarantor] as sole shareholder and director of the company, who bore the responsibility” to register the charge and that “Mr Anand could not rely upon his own failure to meet this statutory requirement to avoid liability under the guarantee”.
41 Defence counsel, Mr Sandbach submitted that effect of clauses 4.1, 4.2 and 4.3 of the loan deed was that a condition should be implied into the guarantee that the plaintiff would perfect the security. However, I consider that an examination of those terms makes it clear that the securities were intended to be for the plaintiff’s benefit and that the guarantor had a principal liability independent of the borrower.
Whether the Defendant waived or acquiesced in the Plaintiff’s failure to comply with a condition relating to the security
42 Even if it were accepted that it was a condition to be implied in the guarantee that the plaintiff would perfect the security, I consider that Mr Siefert has waived or acquiesced in any failure by the plaintiff to comply with that condition.
43 The following actions by Mr Siefert are relevant in this regard:
a.
In the letter to Dr Chaudhary dated 15 June 2010, Mr Siefert as a director of TWJ, undertook “not to seek any increase” in the mortgage facility relating to 167 Lower Heidelberg Road, East Ivanhoe.
b.
Mr Siefert sought the transfer of the money to be advanced by Dr Chaudhary in an email dated 15 June 2010 without the securities being in place and took no action over the following months to ensure that they were put in place.
c.
No response was made to the letter from Curwen-Walker & Co to the defendant’s accountant dated 19 August 2010, which noted “with concern that the mortgage is still not registered”, even though it was likely in my view the letter would have come to the attention of Mr Siefert soon after it was received by Mr Lucas.
d.
Similarly, in relation to the letter from Curwen-Walker & Co to Mr Siefert dated 16 November 2010, which noted “our client’s mortgage is not registered. This must be done without further delay”. Although Mr Siefert was overseas until
about 24 December 2010, it is clear that he was being notified of mail
received at his home address.
e. Although Mr Siefert had resigned as a director of TWJ on 22 September 2010, he continued to act as though he was effectively in charge of the company. f. On 17 December 2010, as the sole shareholder of the company, Mr Siefert from the United States called a meeting at which the liquidator was appointed. 44 In the circumstances, where Mr Siefert made no prior effort to ensure that TWJ had provided appropriate security, he has either waived any requirement that Dr Chaudhary comply with an condition that the security must be put in place, or alternatively, has acquiesced in the failure to put the security in place.
45 In Sonntag v Graziano (unreported NSW Court of Appeal 15 April 1994), a loan agreement provided that:
“The borrower shall not be entitled to any advance pursuant to this
agreement unless and until the lender holds the securities specified in Item IQ (the “security”) and a guarantee by the guarantor in form and substance satisfactory to the lender”.
46 Security was defined in the loan agreement as “unregistered second mortgage of
even date between the lender and borrower over property known as Albatross Court,
60-62 Albatross Avenue, Mermaid Beach”. The Court of Appealnoted at page 3 of
the judgment “that notwithstanding the provisions of clause 13 of the loan agreement,
no formal mortgage document was executed by the company”. The guarantor
“submitted that the provision of the security referred to in the loan agreement was acondition precedent to the coming into operation of the loan agreement and/or of the
guarantee and that accordingly the guarantee never became operative to bind him”.
47 Mahoney JA, with whom the other judges of appeal agreed, noted at page 5 the principle of law that, “Where a transaction of which a guarantee is part envisages that
a security will be given for the performance of the principal obligation guaranteed and
that security is not given, prima facie the guarantee is avoided”. At page 7, Mahoney
JA noted that, “Mr Sonntag accepted expressly in his evidence that he knew at therelevant times that the security had not been given but, as the submission was, as he
and the other parties had left the matter to the solicitor, the guarantee was to beavoided if the security was not in fact obtained”.
48 Mahoney JA continued, “I do not think that submission should be accepted. The
guarantee envisaged that, in the context, the security ‘will be furnished’. It was open by Mr Sonntag. I do not dissent from that finding … I do not think that it was open to Mr Sonntag to rely upon the non-provision of security as a ground for avoiding the guarantee”.
to Mr Sonntag to waive or to acquiesce in the non-fulfilment of that arrangement.49 Mr Sandbach relied upon the statements by the High Court in Commonwealth v Verwayen (1990) 170 CLR 394, in support of a submission that there must be an election inconsistent with the party’s rights and to merely stand by is insufficient to constitute a waiver. Mr Sandbach submitted that Sonntag should be distinguished because in that case only one solicitor had been acting for the parties and the inaction of the solicitor could not be attributed to the guarantor. Also, in the present case, there had been no agreement as in Sonntag that the mortgage should be registered before the advance was made.
50 In my view, however, the decision of Sonntag is equally applicable to the facts of the present case and if the perfection of the securities was a condition to be implied into the guarantee then the defendant has waived compliance or acquiesced in Dr
Chaudhary’s non-compliance with that condition.
Effect of the deed of agreement dated August 2011
51 The defence alleges that the security held by the plaintiff over the Alphington land was abandoned without any reference to the defendant. The defendant’s solicitor, Simon A Nixon, also acted as solicitor for the liquidator Mr Dunner. By letter dated 20
July 2011, Mr Nixon, on behalf of the liquidator, asserted that Dr Chaudhary had no interest in the Alphington land under the deed of loan and required the withdrawal of the caveat lodged in respect of the property. The caveat had been lodged on the
basis of the security offered by TWJ of a second registered fixed and floating charge
over the company’s assets.52 However, in the absence of registration of the charge it was arguably void as against the liquidator. By the deed of agreement dated August 2011, the plaintiff agreed to the withdrawal of the caveat on the basis that monies in the controlled monies account, including any interest earned, were to be released to Dr Chaudhary as his absolute property, proceeding number CI-11-01816 was to be discontinued, and Dr Chaudhary would be entitled to prove as an unsecured creditor in the liquidation of TWJ for the balance of loan monies.
53 In clause 2.5 of the deed, it was provided that “the signing of this agreement is
without prejudice to Chaudhary’s right to maintain and pursue the Siefert
proceedings” [the present proceeding]. In the circumstances, even if it were a
condition precedent to the enforceability of the guarantee that the security (including
in relation to the Alphington land) should be maintained, it is likely that the security
could not have been enforced against the liquidator and the terms upon which the
dispute was resolved were entirely appropriate.54 The rights as against Mr Siefert were preserved. The defendant’s solicitor was aware of the terms of the deed. It is not apparent that any loss in the value of the securities has resulted from the entry into the deed in August 2011 by Dr Chaudhary.
Interest payable under the loan deed
55 Mr Sandbach submitted that if it were held that Mr Seifert had defaulted under the guarantee or was liable to indemnify Dr Chaudhary that, “The only interest payable
under the deed was interest in the sum of $50,000 to be paid in advance on the
signing of the agreement”. Accordingly, the plaintiff could only recover interest under
the Penalty Interest Rates Act and not 10% per quarter as provided for in the deed.56 “on the outstanding balance from time to time under The plaintiff claimed interest Clause 3.2 of the deed provides that: “The Borrower will pay to the Lender interest on
the Loan calculated at the Interest Rate, such interest to be paid in advance on the
signing of the agreement, subject to clauses 3.3 [Early repayment] and 3.4
[Repayments from sales of Lots]”. “Interest rate” is defined in clause 1.1(c) of the
deed as meaning: “the rate of Ten per cent (10.0%) per quarter”.57 Mr Campbell submitted that although there was no specific provision for payment of the specified interest upon default, that was the only appropriate construction to be given to the deed. The use of the expression “per quarter” indicated that the rate of 10% was applicable to each quarter in respect of which the principal sum was
outstanding. That this was contemplated by the parties as a possibility, was the
reason the loan deed incorporated requirements for security and for a guarantee and
indemnity.58 I accept the plaintiff’s submissions that the intention of the parties, as reflected by the structure and provisions of the deed, was that, if there were a default in payment of the principal sum, that interest would accrue at the rate of 10% per quarter as specified in the deed.
Conclusion
59 Dr Chaudhary is entitled to judgment against the defendant for the amount remaining outstanding under the loan deed dated 15 June 2010.
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Certificate
I certify that these 19 pages are a true copy of the reasons for decision of His Honour Judge
Anderson delivered on 21 December 2011.
Dated: 21 December 2011
Caroline Dawes
Associate to His Honour Judge Anderson
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