Dynamic Supplies Pty Ltd v Gina Lorna Morrison and 1 Or

[2005] NSWSC 1307

CITATION:	Dynamic Supplies Pty Ltd v Gina Lorna Morrison & 1 Or [2005] NSWSC 1307
HEARING DATE(S):	28 October 2005
JUDGMENT DATE :	28 October 2005
JUDGMENT OF:	Brereton J

CATCHWORDS:	EQUITY - charging clause in guarantee - claim by creditor for declaration of equitable interest in land - no question of principle
LEGISLATION CITED:	Contracts Review Act 1980 (NSW)
PARTIES:	Dynamic Supplies Pty Limited (plaintiff) Gina Lorna Morrison (first defendant) Westpac Banking Corporation (second defendant)
FILE NUMBER(S):	SC 2333/05
COUNSEL:	Mr G Sirtes (plaintiff) Ms Morrison (in person) (first defendant) Mr T Kerr (solicitor) (second defendant)
SOLICITORS:	Jones King Lawyers (plaintiff)

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRERETON J

FRIDAY 28 OCTOBER 2005

2333/05 DYNAMIC SUPPLIES PTY LIMITED v GINA LORNA MORRISON & 1 OR

JUDGMENT – (ex tempore – revised 20 December 2005)

1 HIS HONOUR: The plaintiff Dynamic Supplies Pty Ltd supplied goods on credit to IT Imaging Pty Ltd (ITI), a company of which the first defendant Gina Lorna Morrison was at all material times the sole director. Ms Morrison executed a guarantee and indemnity in favour of Dynamic in respect of the indebtedness of ITI, and that guarantee and indemnity includes a provision, the purport of which is to secure the amount for which she may be liable pursuant to the guarantee and indemnity on any interest which she may have in land. Ms Morrison is the registered proprietor of the land in folio identifier 851/804012 situate at and known as 5 Fishburn Court, Terrigal in the State of the New South Wales, of which the second defendant Westpac Banking Corporation is the registered first mortgagee.

2 By summons filed on 8 April 2005, Dynamic claims a declaration that 5 Fishburn Court is subject to an equitable mortgage securing Ms Morrison’s obligations under the terms of the guarantee and indemnity, a declaration that the Terrigal land is charged with the repayment to Dynamic by Ms Morrison of a principal sum of $226,402.84 and interest at the rate of 9 percent per annum from 26 November 2004, and judgment against Ms Morrison for that sum and interest.

3 Trade between ITI and Dynamic appears to have commenced in about July 1999. On 8 July 1999 Ms Morrison, on behalf of ITI, submitted to Dynamic by facsimile an application for a 30 day credit account, apparently signed by Ms Morrison. That application included a guarantee signed by Ms Morrison, dated 5 July 1999, by which she personally guaranteed to Dynamic payment by ITI, in accordance with Dynamic's usual and customary terms of payment, for all products that Dynamic may from time to time supply to ITI.

4 On 10 August 2000, Dynamic wrote to ITI, for the attention of Ms Morrison, confirming that a credit limit of $40,000 had been approved.

5 Dynamic says that on 22 November 2001 Mr Futter, its Chief Operations Officer, had a telephone conversation with Ms Morrison in which she asked for an increase in the credit limit to $200,000, to which Mr Futter responded, "We will need you to sign a new guarantee. There will be a director's guarantee with a charging clause over real property". He says Ms Morrison replied, "Don't worry about security, I have a number of properties". Mr Futter made some handwritten notes of that conversation, which include the words "owns property". He says that he then faxed to Ms Morrison a copy of the new credit application and guarantee, and commenced to obtain reports from credit reporting agencies and credit references. He says that on 28 November 2001 he received by mail a credit application and guarantee bearing a signature and initials which he took to be Ms Morrison’s (and there is no suggestion that they were not). He also obtained some of the trade references, and decided to approve the increase in credit. On 19 December 2001, he sent to Ms Morrison by facsimile a letter approving the increased credit limit of $200,000.

6 Ms Morrison’s version of these events is somewhat different. She says that in November 2001 (which I take to be the year to which she was referring, although in evidence there was some confusion as to whether this was 2001 or 2002), she was at Pymble Ladies College, implementing a large and complicated transaction involving the provision of desktop computers to that school. She says that during this transaction, orders were submitted to Dynamic on a daily basis, and representations were made to her by Dynamic that the orders had been met and dispatched, but that on the fifth or sixth consecutive day of such conversations, without goods having been delivered, she was informed that in fact they had not been dispatched at all, and that a new credit application form would be required before they could be dispatched. That form was received by her by facsimile and she says that one evening, having completed her work for the day at the school, while attending to paperwork, she filled out the credit application form and signed it in preparation for its return, but on the basis that she intended first to obtain legal advice before it was returned. However, while she was attending to business on a following day, continued demands from Dynamic for return of the credit application were received by her assistant Renee Morris, who faxed the signed credit application form back to Dynamic. Ms Morrison says that having been informed of that by Renee, her heart sank; but notwithstanding that, the hard copy of the form was also returned to Dynamic some days later.

7 The form of guarantee and indemnity include provisions to the effect that Ms Morrison guaranteed punctual payment to Dynamic of all amounts ITI now or at any time in the future owed to Dynamic. She guaranteed punctual and correct compliance with all obligations, including payment obligations, which ITI had now or may in the future have to Dynamic. She indemnified Dynamic against any loss it may suffer if ITI did not meet any of its obligations. Importantly, clause 7 was as follows (sic):-

Each Guarantor hereby charges with payment of the moneys and the compliance with all obligations secured by this Guarantee and Indemnity all beneficial interests (freehold and leasehold) in real property held now or in the future by a Guarantor. Each Guarantor agrees that if demand is made upon him or her or it by the Company, that Guarantor will immediately execute a mortgage or other instrument of security, or consent to a caveat, as required by the Company and against the event that he, she or it fails to do so within a reasonable time from being so requested, that Guarantor hereby irrevocably and by way of security appoints any credit manager or solicitor engaged by the Company to be his or her other true and lawfully attorney to execute and register such instrument.

8 Between 1 June 2000 and the present, the total trade on ITI account with Dynamic was, according to Mr Futter, in the order of $3,260,000. I must infer that a substantial amount, and probably at least two-thirds of that, was after November 2001. This is relevant because, accepting Ms Morrison's evidence that she did not personally authorise the return of the signed credit application to Dynamic, nonetheless it was returned by someone under her authority to attend to business matters on her behalf and, more importantly, trade was thereafter conducted on it in very large sums of money for a period of almost three years. In those circumstances, were Ms Morrison to endeavour to have the guarantee and indemnity, at least insofar as it contains the charging clause, set aside under the Contracts Review Act or for unconscionability or otherwise, there would be an almost irresistible defence of laches, the prejudice arising from the circumstance that trade had been conducted on the faith of that guarantee for three years and in large sums of money after Ms Morrison was aware that it had been returned to Dynamic. It is also significant, as to the decision that I must make, that Ms Morrison had already given a personal guarantee as a result of the 1999 credit application, so that even without the new credit application in 2001, she would have been personally liable for ITI's indebtedness, on the first (1999) guarantee.

9 A search of the Land Titles Office confirms that Ms Morrison is the registered proprietor of the land comprised in folio identifier 851/804012 at Terrigal. The land at 5 Fishburn Court is therefore caught by the charging clause in the Guarantee and Indemnity.

10 The current balance of ITI's account with Dynamic was said by Mr Futter, in his affidavit sworn 25 July 2005, to be $226,565.85. Mr Futter annexes to his more recent 28 October affidavit a statement of account, which confirms that to be the balance and which shows that there has been no movement on the account since 14 October 2004.

11 Ms Morrison has given evidence to the effect that, as a result of the return of faulty goods and negotiations which took place between her and Dynamic, it was agreed that she should receive a credit of about $17,000 for the returned goods. After that evidence was given, Dynamic, without admission, conceded for the purpose of these proceedings a credit of $17,000, which would reduce the balance on the account to $210,000 approximately. Ms Morrison did not dispute that ITI was liable to Dynamic for that amount, nor that she was also liable on her personal guarantee.

12 On 26 November 2004, Dynamic’s lawyers Jones King sent a letter of demand to Ms Morrison at Fishburn Court, Terrigal. I understand her evidence to be to the effect that she did not receive it, and it may be that she had vacated the Terrigal property by that time. Although her evidence did not precisely address the letter, it was to the effect that she had not received any request or demand for payment.

13 On 2 November 2004, Dynamic lodged a caveat in respect of Fishburn Court, claiming an interest as chargee under a charge constituting an equitable security interest in the land by virtue of clause 7 of the guarantee and indemnity. Ms Morrison, as a result, found herself in the position that while, on the one hand, her company owed money to Dynamic, on the other she was prevented by the caveat, as she saw it, from refinancing or selling. As a result, as she perceived it, she found herself in the difficult if not impossible position, of not being able to proceed with a refinance which otherwise had been approved, or later to sell the property to realise funds, and so was prevented from realising funds to help pay Dynamic's debt.

14 Against that, it also needs to be borne in mind that, had the house been sold even for $600,000, it seems highly unlikely, at least on the figures that have been put before me today, that even then there would have been sufficient funds to pay the total debt to Dynamic. In any event, Dynamic could not have resisted an application to remove the caveat in the face of a proposal to pay it the money which it claimed.

15 Dynamic commenced these proceedings by filing the summons on 7 April 2005. Because of the circumstances in which notice has come to be given to Ms Morrison of the proceedings, it is necessary to say something more about the history of the matter since that date. Dynamic's lawyer, Mr Pearlman, of Jones King, was at the outset unable to effect service on Ms Morrison, and attempts at effecting service at the Terrigal property and otherwise locating Ms Morrison proved unsuccessful, as she has told the Court that she had left that address and is residing elsewhere. However, on 7 July 2005 Mr Pearlman received a telephone call from John Grimble, a partner of Gadens, who said that he was acting for Ms Morrison and was trying to sell the property but could not if the caveat was on the title. Mr Grimble sought details of what interest was said to support the caveat. Mr Pearlman explained that Ms Morrison had signed a guarantee with a charging clause and mentioned that proceedings had been commenced, but that it had not been possible to serve Ms Morrison. Mr Grimble asked for a copy of the credit application, so that he could give Ms Morrison some advice about Dynamic's rights to lodge a caveat.

16 Having obtained instructions from Dynamic, Mr Pearlman left a message with Mr Grimble's secretary that he would send documents to Mr Grimble upon receiving written confirmation that Gadens acted for Ms Morrison. On 7 July 2005 Gadens served on Jones King a lapsing notice in respect of the caveat. On 12 July, Jones King wrote to Gadens confirming that the proceedings were on foot in the Supreme Court and that it had not been possible to serve Ms Morrison, and enclosing a copy of the summons and then supporting affidavit. The letter also foreshadowed proceedings to obtain an order for extension of the caveat, and specified the basis of the claim for a caveatable interest.

17 On 18 July Mr Pearlman had a telephone conversation with Mr Grimble. Mr Grimble reported that Ms Morrison had said the guarantee was given without her consent, that there were other issues about the claim, and that he had no instructions to consent to the application for the extension of the caveat, nor to accept service of the summons in the principal proceedings.

18 The matter was before the Registrar for directions on 18 July. Ms Morrison was neither present nor represented. Mr Pearlman made a telephone call from court to Mr Grimble, who said that the Lapsing Notice had been served on 7 July; Mr Pearlman indicated that he would seek an order for service of a Notice of Motion (for extension of the caveat) by 21 July, any evidence in reply to be served by 26 July, with a hearing on 27 or 28 July, to which Mr Grimble apparently agreed. Such directions were duly made by the Registrar on 18 July, and by facsimile letter dated 19 July Jones King notified Gadens accordingly, including that the proceedings were listed on 28 July with a view to referral for hearing that day. The letter also recorded:

We also confirm your client is considering an offer to Dynamic Supplies Pty Limited in view of the likely sale of the property. We confirm we will need a copy of the front page of the proposed contract for sale together with the particulars of the offer, before our client can consider the matter further.

19 On 21 July a clerk from Jones King, Edward Yin, attended at the reception of Gadens and asked for Mr Grimble. After some inquiries he was invited to leave the documents with the receptionist, who said she had authority to accept service on behalf of Mr Grimble, and he handed to her the Notice of Motion for extension of the caveat and supporting affidavits.

20 The proceedings came before Einstein J on 28 July 2005. His Honour granted leave to Dynamic to file in Court Mr Yin's affidavit of service, noted the usual undertaking as to damages, ordered that the operation of the caveat be extended until further order of the Court, and made an order for substituted service of the summons and supporting affidavit, together with a sealed copy of the order and a letter requesting that Gadens forward the documents to Ms Morrison, on any person apparently not less than 16 years old employed at Gadens. His Honour's order provided that the summons would be taken to have been served on Ms Morrison on the expiry of seven days after compliance with that order. The proceedings were stood over to 1 August for further directions.

21 Mr Yin's affidavit of 27 October 2005 proves that on 28 July at 4.20pm he served a person apparently over the age of 16 years, namely Belinda Vistrill, Mr Grimble's secretary, at Gadens, personally with a sealed copy of the Court's order, the summons, an affidavit of Mr Peccinini, and a letter dated 28 July 2005 requesting that Gadens forward those documents to Ms Morrison, pointing out that the proceedings had been listed for directions on 1 August. Accordingly, the summons is to be taken as having been served on Ms Morrison on 5 August.

22 On 1 August the proceedings were adjourned to 22 August, and Jones King by facsimile letter to Mr Grimble at Gadens advised that the proceedings had been adjourned for further directions on 22 August.

23 According to Ms Byrne, a solicitor in the employ of Jones King, who attended the directions hearing on 22 August before the Registrar, she also mentioned the appearance of Westpac, and there was no appearance on behalf of Ms Morrison. The matter was referred for mention in the one day list on 26 August, to obtain a hearing date.

24 On 26 August the matter came before the Chief Judge in the one day list, when Ms Byrne appeared for Dynamic. There was no appearance on behalf of Ms Morrison. Ms Byrne also mentioned the appearance of Westpac, and the matter was then set down for hearing today.

25 By facsimile letter dated 7 September 2005, Jones King notified Westpac that the matter had been set down for hearing today. However, it does not appear that any notice was given, either to Gadens or to Ms Morrison personally, that the proceedings were set down for hearing today. For that reason, notwithstanding that there is a substantial default in appearance on behalf of Ms Morrison, and notwithstanding there has been compliance with the order for substituted service made by Einstein J, and notwithstanding also that - given that Gadens had instructions to serve a lapsing notice and apparently still have instructions to act on the sale of land - one might infer that they would have told Ms Morrison about these proceedings, I have, nonetheless, considered very anxiously her application for an adjournment today. I accept her evidence that she was not aware of today’s hearing until yesterday. But, as I think became evident in discussion between Ms Morrison and me, there is little utility in granting an adjournment, for these reasons: first, it is not in dispute that Ms Morrison gave a personal guarantee for ITI's indebtedness to Dynamic; secondly, it is not in dispute that that debt amounts to about $210,000; thirdly, to the extent that the precise amount of the debt was in dispute with Ms Morrison contending that she was entitled to a credit of about $17,000, the concession of that credit for $17,000 has removed that dispute; fourthly, Westpac is now in possession as mortgagee of the Fishburn Court property, which is to be sold by Westpac as mortgagee and, on the evidence, it might be worth somewhere between $550,000 and $600,000, while Westpac's mortgage is in the order of $530,000, so that the equity in the property would on any view be nowhere near sufficient to meet the most conservative view of Dynamic's debt; fifthly, and ultimately, I came to the view that Ms Morrison should nonetheless be offered an adjournment, but only on terms that she pay Dynamic's costs of and thrown away by the adjournment, and she honourably conceded that she was in no position to meet those costs.

26 In those circumstances, I concluded that, notwithstanding the late notice which Ms Morrison received - and I might say that late notice is due to no fault on the part of those acting for Dynamic - the justice of the case would best be served by proceeding with the matter today.

27 Ms Morrison has made articulate and moving submissions about her position, the difficulties which she has encountered, and what she perceives to be the uncommercial approach of Dynamic in the circumstances. Ms Morrison also, I think, understands that matters which may seem very relevant to her from a practical perspective are not necessarily relevant to the decisions which the Court must from a legal perspective, make. In particular, it is not for me to judge or question the commercial wisdom of the approach which Dynamic has taken.

28 The following essential facts seem beyond dispute. First, ITI is indebted to Dynamic, for a sum which, for present purposes, is accepted to be about $210,000. Secondly, Ms Morrison is liable on her first (1999) personal guarantee to Dynamic for that sum. Thirdly, whatever the circumstances in which the second (2001) guarantee, containing the charging clause, was executed, the parties have conducted their affairs for three years since then on the basis that that document had been delivered to Dynamic. Fourthly, no application has been brought to set aside the charging clause, under the Contracts Review Act or for unconscionability, and for the reasons I have already given, such an application if brought would face enormous difficulties.

29 On those fundamental and uncontroversial facts, it is indisputable that the plaintiff is substantially entitled to the relief it claims, subject to reduction of the amount claimed to $209,565.85.

30 The plaintiff is also entitled to interest on the amount due. Interest at 9 percent for 11 months from the demand on 26 November 2004 is $17,289.18, which produces a total debt of $226,855.03.

31 The orders of the Court are:-

(1) Declare that the land comprised in folio identifier 851/804012 situate at 5 Fishburn Court, Terrigal in the State of New South Wales is subject to an equitable charge from the first defendant Gina Lorna Morrison to the plaintiff Dynamic Supplies Pty Limited in accordance with the terms of the guarantee and indemnity between the first defendant and the plaintiff dated 22 November 2001.

(2) Declare that the said land stands charged with the payment to the plaintiff of the sum of $226,855.03.

(3) Give judgment that the first defendant pay the plaintiff the sum of $226,855.03.

(4) Order that the first defendant pay the plaintiff's costs.

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