Cifg (Australia) Pty Ltd v Mantas
[2012] VCC 1797
•11 December 2012
| IN THE COUNTY COURT OF VICTORIA AT MELBOURNE CIVIL DIVISION | Revised Not Restricted Suitable for Publication |
COMMERCIAL LIST
GENERAL DIVISION
Case No. CI-12-00961
| CIFG (AUSTRALIA) PTY LTD CIFG (HK) LIMITED and CIFG LIMITED | Plaintiffs |
| v | |
| KONSTANTINO MANTAS | First Defendant |
| and | |
| ANNE MANTAS | Second Defendant |
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JUDGE: | HIS HONOUR JUDGE SMITH | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 15 and 16 November 2012 | |
DATE OF JUDGMENT: | 11 December 2012 | |
CASE MAY BE CITED AS: | CIFG (Australia) Pty Ltd & Ors v Mantas & Anor | |
MEDIUM NEUTRAL CITATION: | [2012] VCC 1797 | |
REASONS FOR JUDGMENT
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Subject: GUARANTEE
Catchwords: Guarantee – enforceability – whether there was valuable consideration given – whether the principal debt was incurred pursuant to an agreement to which the guarantee applied.
Legislation Cited: Corporations Act 2001, s601CD; Property Law Act 1958 (Vic), s73A
Cases Cited: Gippsreal Ltd v Registrar of Titles and Kurek Investments Pty Ltd [2006] VSC 115; Gippsreal Pty Ltd v Boyle & Anor [2006] NSWSC 601; Gippsreal Pty Ltd v Registrar of Titles & Kurek Investments Pty Ltd [2007] VSCA 279; Loftus v Roberts (1902) 18 TLR 532; Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 at 517; International Malting Co Australia Pty Ltd v Pyle [2003] VSC 496; Thorby v Goldberg (1964) 112 CLR 597; Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386.
Judgment: Judgment for the plaintiffs in the sum of $213,050.20.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr J Tomlinson | Desmond Lieu |
| For the First Defendant | Mr B McNab | Aldgate Lawyers |
HIS HONOUR:
1 On 22 June 2010, the plaintiffs entered into an agreement with Inshop Pty Ltd (“Inshop”) whereby they agreed to provide trade finance to Inshop pursuant to certain terms and conditions.
2 The agreement is set out in a document entitled “Master Trading Agreement” (“the MTA”).[1]
[1]Exhibit B, Joint Court Book (“CB”) 19
3 On the same date, Konstantino Mantas executed a document entitled “Guarantee and Indemnity” (“the Guarantee”)[2]. The parties to the Guarantee are Mr Mantas (who is described therein as “the Guarantor”) and the three plaintiff companies (collectively referred to in the Guarantee as “CIFG”).
[2]Exhibit B, CB 39
4 The plaintiffs allege that Inshop is indebted to them in the sum of $213,050.20 pursuant to the terms of the MTA. Inshop has gone into voluntary liquidation. The plaintiffs bring this proceeding against the first defendant, alleging that he is liable to them under the Guarantee in respect of Inshop’s indebtedness to them. The proceeding against the second defendant is discontinued as she is now bankrupt. I shall refer to Mr Mantas hereafter as the defendant.
5 The parties jointly tendered a Statement of Agreed Facts.[3] The Statement contains numerous references to documents contained in the Joint Court Book (“CB”) tendered by the parties as Exhibit B. Paragraphs 1 and 2 of that Statement contained matters which were not facts, and I shall omit them. Otherwise, the agreed facts were:
[3]Exhibit A
“1…
2…
3The first defendant (Mr Mantas) was at all times the General Manager of Inshop Pty Ltd (Inshop).
4His wife, the second defendant, was the sole director and shareholder. Mrs Mantas filed for bankruptcy recently and the proceeding is stayed against her (in accordance with s58(3) of the Bankruptcy Act).
5Inshop was in the business of importing clothing and textiles.
6In response to a letter from CIFG Limited addressed to Mrs Mantas dated 22 February 2010 (CB.147), Mr Mantas emailed CIFG Limited to ‘discuss the possibility of trade finance’ (CB.148).
7CIFG Ltd is the third plaintiff (CIFG Ltd).
8On or about 30 March 2010, Inshop (by its director Mrs Mantas) completed a ‘Facility Application’ form for trade finance from CIFG (CB.150). Mr Mantas was named as ‘key staff’ and as an ‘authorised signatory’ for Inshop (CB.151).
9On 31 May 2010 CFIG Ltd wrote to Inshop and approved a facility to Inshop of AUD$100,000 on terms (CB.153).
10The Terms were set out in a Master Trading Agreement and Guarantee documents attached to the letter of 31 May 2010.
11The Master Trading Agreement and Guarantee (insofar as the guarantee was sought of Mr Mantas) are found at CB.19-43.
12Inshop by its director Mrs Mantas executed the Master Trading Agreement on 22 June 2010 (CB.19-38).
13At the same time Mr and Mrs Mantas executed the Guarantees that had been delivered under cover of the letter of 31 May 2010. The guarantee of Mr Mantas is found at CB.39-43 (the Guarantee). A separate Guarantee was executed by Mrs Mantas.
14Inshop entered into voluntary liquidation on 25 January 2012 (CB.119).
Parties to the Master Trading Agreement and Guarantee
15The Master Trading Agreement and the Guarantee was entered into by, in the case of the Master Trading Agreement, Inshop, and, in the case of the Guarantee, Mr Mantas. These two agreements were also entered into by all three plaintiffs, who were separately named (in each of the Master Trading Agreement and the Guarantee) as:
a) CIFG (HK) Limited; and
b) CIFG (Australia) Pty Ltd; and
c) CIFG Ltd.
16Neither CIFG (HK) Limited nor CIFG Ltd are registered, nor have they applied to be registered to ‘carry on business in Australia’ under sec 6O1CD of the Corporations Act2001.
17Immediately under the named parties the following words appear:
‘(collectively referred to in this [Master Trading Agreement] as CIFG’ and ‘(collectively referred to in the Guarantee as CIFG’) (CB.19 and CB.39).
18Clause 1(c) in the Master Trading Agreement and the Guarantee states that
‘an obligation imposed by this Agreement upon more than one person binds them jointly and severally.’ (CB.20)
Terms of the Master Trading Agreement
19The terms of the Master Trading Agreement are set out in the Master Trading Agreement (CB.19-38).
20The ‘Terms Notification’ required to be given under the clause 3(a) of the Master Trading Agreement was annexed to the Master Trading Agreement (CB.33).
The Guarantee
21Mr Mantas entered into the guarantee on 22 June 2010, which was required by cl 4(j) of the Master Trading Agreement (CB.26), (CB.39) Mrs Mantas also executed the Guarantee required of her.
Process followed
22The process for applying for and obtaining the finance for paying for shipments was set out in cl 3 of the Master Trading Agreement and was, in fact, as follows:
a) Inshop would negotiate to purchase goods from a supplier;
b) Inshop would send an ‘Order Application’ form to CIFG Limited in respect of the shipping costs;
c) CIFG Limited would consider the application and if approved respond by sending an email attaching:
i) A confirmation of order form;
ii) An invoice from CIFG Limited, which included the shipping costs and CIFG’s own commission and interest and was payable in 90 days;
iii) A ‘break down’ of payment options, requiring post-dated cheques to be sent in respect of the invoice.
d) Inshop would then
i) Return a completed order confirmation form;
ii)Send (by express post) post dated cheques in respect of the invoice.
23There are four relevant transactions, which form the basis of the plaintiffs’ claim. Each followed the process set out above. The progress of those transactions is explained in the Table of Schedules attached.
Increases of credit
24From time to time, as described below and as set out in the relevant emails concerned, Mr Mantas requested increases on ‘the facility’, which requests were granted:
a) 26 October 2010 (notification of an increase to $125,000) (CB.93-95)
b) 2 February 2011 (request and grant of increase to AUD$150,000) (CB.96-104)
c) 19 April 2011 (Inshop’s facility was at the $150,000 limit, but Mr Mantas requested credit for a shipment of around $117,000, equating (adding CIFG charges) to an increase of approx. $130,000. This was granted (CB.106-110)
d) 20 July 2011 (request and grant of an increase to $200,000) (CB.111-118)
Lending of Money by CIFG Ltd
25Finance was provided from time to time to Inshop by CIFG Ltd. The amounts advanced (and repayments made by Inshop to CFIG Ltd from time to time) are set out in the CIFG spread-sheet at (CB.143).
26The sum of $213,050.20 was owing by Inshop as at the time it entered into liquidation.
27A demand by letter addressed by CIFG Ltd was made of Mr Mantas to repay that sum (CB.155) dated 7 February 2012.
28The sum of $213,050.20 has not been repaid by Inshop or Mr Mantas (or Mrs Mantas) to CIFG Ltd, or to any other plaintiff.”
6 There was no oral evidence called by either party at the hearing. Accordingly, the matter is to be determined on the basis of the Agreed Statement of Facts and documents tendered.
The MTA
7 The MTA provided:
(a) The plaintiffs (collectively referred to as “CIFG”) agreed to provide “the Facility” to “the Client” (Inshop) and the Client agreed to use the Facility on the terms contained in the agreement.
(b) “The Facility” is defined in clause 1(g) as:
“[T]he credit facility granted to the client by CIFG in which CIFG will, amongst other things, provide trade finance, purchase and resell goods to the order of the client, confirm contracts, make payments, draw or accept Bills of Exchange, and raise Letters of Credit.”[4]
[4]Exhibit B – CB 20
(d) “Terms Notification” is defined in Clause 1(g) as:
“[T]he Terms Notification in or approximating the form annexed to this Agreement which contains the latest trading terms that apply to the Client for the time being.”
(e) Annexed to the MTA is a document entitled “Terms Notification”[5] which sets out, inter alia:
[5]Exhibit B – CB 33
· The limit of the Facility is AUD$100,000;
· The maximum credit period is 90 days;
· Personal guarantees were required from the defendant and Anne Mantas.
(f) Clause 1(c) provides that an obligation imposed by the MTA upon more than one person binds them jointly and severally.
(g) Although CIFG agreed to provide the Facility on the terms contained in the MTA (Clause 2), Clause 3(b) provided that:
“CIFG may, at the absolute discretion of CIFG and at any time:
(1) increase, extend, reduce or withdraw the Facility; or
(2)alter any of the terms contained in the Terms Notification. (‘the Changes’)
(3)CIFG may, but is under no obligation to do so, inform the Client of the Changes beforehand.
(4)CIFG must inform the Client as soon as practicable after the Changes and may do so in writing or verbally.
(5)Notwithstanding the method that CIFG uses to inform the Client and notwithstanding whether CIFG has informed the Client of the Changes, the continued use of the Facility by the Client after the Changes shall constitute acceptance of the Changes by the Client.”
(h) All repayments interest and charges were to be made to CIFG (Clause 4(a)).
8 The MTA was executed by each of the plaintiff companies and by Inshop.
9 Broadly, the effect of the MTA was that, upon application by Inshop, CIFG would pay for goods that Inshop wished to purchase. CIFG would invoice Inshop for an amount equal to the sum of the purchase price of the goods, CIFG’s commission and interest charges. The supplier of the goods would deliver them to Inshop.
10 In effect, Inshop obtained a longer time in which to pay the CIFG invoice than it would have had to pay the supplier’s invoice, thus assisting its cash flow position. In turn, CIFG charged Inshop an additional 7 per cent over and above the amount of the supplier’s invoice, and profited accordingly.
11 The effect of Clause 3 of the MTA was that CIFG could withdraw the Facility at any time. It follows that CIFG was not obliged to pay any monies at all under the MTA if, in its absolute discretion, it chose not to do so. At some time after the MTA was executed, it did in fact make a number of payments.
The Guarantee
12 The parties to the Guarantee were the first defendant and the three plaintiffs, again collectively referred to in the Guarantee as “CIFG”.[6]
[6]Exhibit B, CB 39
13 The MTA is referred to as “the Agreement”.
14 The first defendant is referred to as “the Guarantor”.
15 Inshop is referred to as “the Client”.
16 The Guarantee was “Signed Sealed and Delivered” by the first defendant.[7]
[7]Exhibit B, CB 42
17 The Terms of the Guarantee include:
(a) Clause 3:
“In consideration of CIFG entering into the Agreement at the Guarantor’s request, the Guarantor guarantees the observance and performance by the Client of the Agreement and the due and punctual payment of all sums of money whether by way of penalty damages, interest, principal or otherwise which may now or at any time be payable by the Client to CIFG.”[8]
[8]Exhibit B, CB 40
(b) Clause 2 provided that the Guarantor had received a copy of the Agreement (the MTA) and has read and understands the effect of it.
(c) Clause 1(b) provided that any amendment to the guarantee must be in writing and signed by the parties.
(d) Clause 4(a) provided that the liability of the Guarantor shall not be avoided or affected by the granting of time, credit or any other indulgence or other concession by CIFG.
18 The correspondence between the parties preceding the execution of the MTA or Guarantee was on the letterhead of the third plaintiff, CIFG Ltd.[9]
[9]Exhibit B, CB 147-148
19 Between about June 2010 and January 2012, CIFG Ltd advanced various sums to Inshop in accordance with the Process Followed as set out in paragraph 22 of the Agreed Statement of Facts.
20 That arrangement appears to have proceeded without problem until January 2012, when Inshop went into voluntary liquidation. At that time, there were four amounts outstanding. In respect of each, the above process had been followed, whereby CIFG Ltd paid for goods required by Inshop, and CIFG Ltd invoiced Inshop accordingly. In each case, Inshop had provided to CIFG a post-dated cheque for the amount of the invoice. The four invoices and post-dated cheques totalled $213,050.20.
21 It can be seen from the Agreed Statement of Facts that the credit limit, initially fixed at $100,000.00, was extended on a number of occasions at the request of the defendant.
22 The most recent of these referred to in the Agreed Statement of Facts is that of 20 July 2011 whereby a limit of $200,000 was agreed to.[10]
[10]Exhibit B CB 111-16
23 There is no express evidence of any further applications or approvals of applications for an increase in Inshop’s credit facility. Nevertheless, it is clear that during the second half of 2011, the indebtedness of Inshop to CIFG increased to well over $200,000.00, at one point extending to an amount in excess of $300,000.00, before reducing to $213,050.20 by January 2012.
24 Counsel for the plaintiffs submitted that the issues in the case are relatively straightforward. The MTA and the relevant Guarantee are admitted. The debt owed by Inshop to CIFG is not disputed. It follows, he submitted, that the Guarantor is liable to the plaintiffs for Inshop’s debt owed to CIFG.
The Guarantor’s Defence
25 The defendant submitted that he was not liable under the Guarantee in respect of that debt on grounds that:
(a) The MTA provided for provision of credit by “CIFG”, which term was defined as being a collective reference to the three plaintiffs. Likewise, it was submitted that the Guarantee made a similar reference to “CIFG” being, collectively, the three plaintiffs. Counsel submitted that it was plain on the evidence that only CIFG Limited (the third-named plaintiff) had actually provided the funds requested by Inshop and that there was no evidence that the three plaintiffs had acted collectively in advancing those monies. The only party who had acted to provide finance was CIFG Ltd on its own, and, he submitted that it should be seen to have done so outside of the MTA.
(b) The four transactions were not consistent with having been made pursuant to the MTA and, accordingly, the Guarantee did not apply to Inshop’s indebtedness. It was submitted that the alleged inconsistencies were:
(i) The total credit extended to Inshop was more than $200,000. In fact, the balance owed by Inshop over the period from July 2011, up to the time that it went into voluntary liquidation, was always in excess of $200,000, frequently in excess of $250,000 and, for a time, in excess of $300,000.[11] There was, it was submitted, no basis in the MTA for such a level of indebtedness and therefore the debt should be seen as having been incurred pursuant to some other agreement or arrangement between CIFG Ltd and Inshop.
[11]Exhibit B, CB 143
(ii) In each of the four transactions relied upon by the plaintiffs, the period of credit had been extended, by agreement, to beyond 90 days. It was submitted that there was no basis in the MTA for that to occur and no agreement evidenced in writing whereby that limit was increased beyond ninety days.
(c) The consideration provided for the Guarantee was of “CIFG” entering into the MTA.[12] The consideration was not the advancing of monies by “CIFG”. Given the terms of the MTA, and in particular Clause 3, Counsel submitted that it followed that any consideration given was illusory and that the Guarantee was unenforceable.
(d) If the defendant was liable under the Guarantee, the amount of that liability should be limited to $200,000 because there was no evidence that CIFG had ever extended the Facility limit above that amount.
[12]Exhibit B, CB 45
26 I shall address each of these submissions.
The Advances by CIFG Ltd Alone
27 I do not consider that the fact that monies were advanced by CIFG Ltd or that correspondence relating to those advances emanated from it without reference to the first and second plaintiffs is of significance. The MTA provided that the three plaintiffs (collectively referred to as “CIFG”) would make the advances. I consider that the fact that one of the three actually advanced the various sums is of no relevance. As a matter of convenience, it is unsurprising that monies agreed to be advanced would be provided by one or other of the plaintiffs or that the relevant correspondence would emanate from one or other of them. There was no evidence as to the arrangement between the three plaintiffs as to how they would contribute to the advances – whether equally or in some other proportions – or as to how they would adjust, share or apportion repayments made by Inshop. In my view, these matters are not relevant to the issues before the Court. They are matters as between the three plaintiffs, and of no concern to the defendant.
28 I do not consider that the advances were required to be literally jointly made in order for such advances to fall within the terms of the MTA.
The Variation of Terms
29 The MTA provided that “CIFG” could, at its absolute discretion, increase or extend the Facility or alter any of the terms contained in the Terms Notification.[13]
[13]Clause 3(b)
30 Insofar as CIFG extended the limit of the facility at various times to amounts in excess of $100,000 and extended the credit period beyond ninety days, I consider that such extensions fell within Clause 3(b). These alterations were evidenced in the written correspondence between CIFG Ltd and the defendant in his role as General Manager of Inshop. The exception is what appears to be the final extension of the credit limit beyond $200,000.
31 There is no direct evidence that Inshop had expressly sought, through the defendant or any other person, a further extension of the Facility beyond $200,000. Nevertheless, I find that CIFG, Inshop and the defendant would have been aware of each of the occasions on which CIFG had advanced funds pursuant to the MTA, the amounts of those advances, and the total level of indebtedness of Inshop from time to time.
32 The MTA expressly provided that CIFG could, at its absolute discretion, increase or extend the Facility with or without notice to Inshop. The only obligation upon it was to inform Inshop as soon as practicable after such changes, in writing or verbally.
33 As a matter of probability, I find that the defendant and Inshop were aware that CIFG had, from time to time in the period between February 2011 and January 2012, allowed or extended the level of advances made by it under the MTA to exceed $200,000. It is clear that the final four amounts advanced by CIFG pursuant to the MTA total $213,050.20. At or about the time of each of those advances, an invoice evidencing the amount advanced was sent by CIFG to Inshop and a post-dated cheque for that sum was provided by Inshop to CIFG. In each of the four transactions, a similar written request by Inshop, written invoice from CIFG and post-dated cheque were involved. I find that each of those transactions, pursuant to which monies were advanced under the MTA, was evidenced in writing in accordance with the Process Followed set out in the Agreed Statement of Facts.[14] I find that, in following that process, CIFG gave written advice of the extension by it of the Facility limit, sufficient to accommodate the particular transaction.
[14]Exhibit A, paragraphs 22-3.
34 Likewise, the extension of terms beyond 90 days was, in each case, the subject of express agreement between CIFG and Inshop. The MTA expressly provided for such variations.
Consideration
35 In consideration of CIFG entering into the MTA at his request,[15] the defendant agreed to guarantee the observance and performance by Inshop of the MTA and the due and punctual payment of all sums of money which may now or at any time be payable by Inshop to CIFG.
[15]Clause 3 of the Guarantee, CB 40.
36 The MTA was an agreement that the defendant acknowledged having read and understood the effect of it.
37 The three plaintiffs did enter into the MTA.
38 Counsel for the defendant submitted that the consideration nominated in the Guarantee was illusory. He referred me to the decision of Hollingworth J in Gippsreal Ltd v Registrar of Titles and Kurek Investments Pty Ltd.[16] There, her Honour considered circumstances where a potential lender had entered into a loan agreement, the terms of which included that the agreement to loan money would only come into existence on the actual making of the advance which might be delayed, or might not occur at all. Her Honour concluded that, at the time the agreement was entered into, consideration was illusory. The potential lender had not promised to do anything and was not obliged to do anything. She relied upon the judgment of Vaughan Williams LJ in Loftus v Roberts,[17] where he had said:
“Promissory expressions reserving an option as to performance do ‘not create a contract’.”
[16][2006] VSC 115
[17](1902) 18 TLR 532 at 534. See also Hillas & Co Ltd v Arcos Ltd [1932] All ER Rep 494 at 517; International Malting Co Australia Pty Ltd v Pyle [2003] VSC 496 at paragraphs [17] and [18] per Smith J; Thorby v Goldberg (1964) 112 CLR 597 at 605
39 Counsel for the defendant submitted that here, any consideration as at the time of execution of the MTA and the Guarantee was illusory, because there was no obligation in the MTA for the plaintiffs to proceed to advance any sum to Inshop. At its absolute discretion it could do so, or it could withdraw or decline to make any advances. He submitted that it was only when monies were actually advanced that consideration was provided and a binding agreement came into existence as between CIFG and Inshop.
40 Her Honour’s decision was followed in Gippsreal Pty Ltd v Boyle & Anor.[18]
[18][2006] NSWSC 601 per White J. See paragraphs [30] to [33].
41 Further, although I was not referred to it, her Honour’s decision was the subject of appeal. On the hearing of the appeal, it was common ground that the reservations in the letter of offer by the potential lender meant that the purported consideration given by the proposed lender was illusory.[19]
[19]Gippsreal Pty Ltd v Registrar of Titles & Kurek Investments Pty Ltd [2007] VSCA 279
42 In both the Gippsreal cases, the agreement expressly provided that it (and presumably any rights under it) did not come into existence until the making of the advance. No advance was ever made. It followed that the obligation upon the borrower to charge his property in favour of the caveator had not arisen.
43 Here, the facts are somewhat different.
44 Here, there is no express term concerning agreement not coming into existence until advances were made. Although CIFG could have withdrawn from the arrangement at any time at its absolute discretion, there could have been no liability on the part of the defendant unless and until advances were made to Inshop. It was clear to all the parties that the making of an advance was always a prerequisite to such liability. Here, unlike the Gippsreal cases, advances were made to the borrower.
45 I consider that CFG did provide consideration, in that it did enter into the MTA and did make a number of advances to Inshop pursuant to it.
46 In any event, the Guarantee here was executed by the defendant under seal. In those circumstances, I consider that there is no requirement for any consideration on the part of CIFG.[20]
[20]O’Donovan – ‘The Modern Contract of Guarantee’ – paragraph 2.1500; ‘Halsbury’s Laws of England’ (4th ed), vol 20, paragraph [114]; Reid Murray Holdings Ltd (in liq) v David Murray Holdings Pty Ltd (1972) 5 SASR 386 at 396; See also s73A Property Law Act 1958 (Vic).
Conclusion
47 It follows that I am satisfied that the defendant is liable under the Guarantee for the full amount of the debt owed by Inshop to the plaintiffs. Accordingly, there will be judgment for the plaintiffs in the sum of TWO HUNDRED AND THIRTEEN THOUSAND AND FIFTY DOLLARS AND TWENTY CENTS ($213,050.20).
48 I shall hear the parties in respect of costs and interest.
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