Enwerd Pty Ltd v Boylan Distribution Services Pty Ltd
[2005] VSC 64
•11 March 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. of
| ENWERD PTY LTD | Plaintiff | |
| v | ||
| BOYLAN DISTRIBUTION SERVICES PTY LTD | Defendant | |
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JUDGE: | DODDS-STREETON J. | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 8 March 2005 | |
DATE OF JUDGMENT: | 11 March 2005 | |
CASE MAY BE CITED AS: | Enwerd Pty Ltd v Boylan Distribution Services Pty Ltd | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 64 | |
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GUARANTEES – Whether guarantee by former director of corporate debtor’s liability under a lease discharged by material variation of principal contract – Whether corporate debtor’s agreement to pay GST on the lease a variation of lease or merely implemented a means of rent review provided in lease – Whether a variation clause in guarantee should be read down ejusdem generis with preceding terms – Whether inference that guarantor consented to variation of lease established.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr P. Hayes Q.C. Mr M. Gronow | Jerrard & Stuk Lawyers |
| For the Defendant | Mr D. Collins Q.C. Mr P. Cosgrave | Coadys |
TABLE OF CONTENTS
Introduction and Background......................................................................................................... 2
Defences............................................................................................................................................... 3
Trial of separate question................................................................................................................. 4
Affidavits............................................................................................................................................. 4
Terms of the Lease............................................................................................................................. 5
Relevant legal principles.................................................................................................................. 9
The Parties’ Principal Contentions............................................................................................... 11
Application........................................................................................................................................ 12
Conclusion......................................................................................................................................... 16
DRAFT
HER HONOUR:
Introduction and Background
In this proceeding, by second further amended statement of claim the plaintiff, Enwerd Pty Ltd (“Enwerd”) claims payment of the sum of $349,595 from the second defendant, Damian Boylan, and the third defendant, Lawrence Boylan, as guarantors of the liability of the corporate first defendant, Boylan Distribution Services Pty Ltd (currently subject to a deed of company arrangement) (“BDS”) as lessee pursuant to a lease.
Under the lease made 7 January 1998 (“the lease”) Mimivac Nominees Pty Ltd and R & A Elliott Pty Ltd, (the plaintiff’s predecessors in title), as lessors leased to BDS as lessee premises situated at Lot 6, 125 Cherry Lane, Laverton North (“the premises”).
The lease was for a 13 year and 164 day term commencing on 21 July 1997 as to a part of the premises, and for a 13 year term commencing on 1 January 1998 as to the balance of the premises.
On 15 January 1998, the lessors sold the premises to the plaintiff. By deed of assignment made 15 January 1988, the lessors assigned all rights under the lease and the guarantee to the plaintiff.
BDS failed to pay rent and outgoings due under the lease to the plaintiff for the period from 1 May 2003 to 1 September 2003.
On 5 September 2003, the plaintiff served on the defendants a written notice of its intention to re-enter and take possession of the premises, in compliance with s.146(1) of the Property Law Act 1958 (Vic) and clause 7 of the lease. The notice specified the breach complained of, and demanded payment of the outstanding rent and outgoings within 14 days.
The notice also made demand under the guarantee for payment of all outstanding rent and outgoings.
BDS failed to comply with the notice. It did not pay the outstanding rent and outgoings. The second and third defendants also failed to pay the rent and outgoings as required by the demand under the guarantee included in the notice.
By writ and statement of claim dated 23 December 2003 the plaintiff issued proceedings against the first, second and third defendants.
On 15 April 2004, BDS appointed Mr G. Keith of Grant Thornton, Chartered Accountants, as voluntary administrator pursuant to Part 5.3A of the Corporations Law.
On 1 June 2004, BDS entered into a deed of company arrangement.
The plaintiff filed and served a notice of discontinuance of the proceeding dated 2 September 2004 against BDS.
The second defendant, Damien Boylan, is the son of the third defendant, Laurence Boylan. It is not disputed that Damien and Laurence Boylan were directors of BDS at the date of execution of the lease. Damien Boylan remains a director of BDS. Laurence Boylan ceased to hold office as a director on 8 February 2000.
Defences
The second defendant and the third defendant have each filed and served defences. By a defence filed 29 December 2004, Damien Boylan does not admit the plaintiff’s entitlement to the reversion, or the service of a notice under s.146(1) of the Property Law Act. Further, he alleges that BDS surrendered the lease to the plaintiff in November 2003 by an agreement partly oral and partly to be implied, which surrender agreement was part performed. He further alleges that the plaintiff made representations to BDS, on which it relied to its detriment by vacating the premises and leasing new premises.
The third defendant, by a defence dated 24 September 2004, denies that a valid notice has been served and pleads that he was discharged from liability under the guarantee by reason of a material variation of the lease.
Trial of separate question
Master Kings, on 12 November 2004, ordered pursuant to Rule 47.04 of the Supreme Court Rules that the liability of the third defendant be determined as a separate question.
Affidavits
The affidavits of George Paget King sworn 18 October 2004, the affidavit of Shlomo Elimeleon Werdiger affirmed 18 October 2004 (save for paragraph 60, other than the first line of paragraph 61 and paragraph 62) and the affidavit of Shlomo Elimelech Werdiger affirmed 24 November 2004 were read on behalf of the plaintiff and received in evidence. There was no cross-examination of the deponents and the matters deposed to were undisputed.
Shlomo Werdiger, by affidavit affirmed 24 November 2004, deposes that he is the managing director of Juilliard Corporation, the plaintiff’s agent in managing properties.
He relevantly deposes that Enwerd, on 15 January 1998, purchased the premises from the lessors and became registered proprietor and owner of the reversion. Enwerd remains the registered proprietor of the premises.
The affidavit of George King sworn 18 October 2004 relevantly states:
“Rent review in January 2003
As at 31 December 2002, the amount of rental payable by BDS under the BDS Lease was $702,010.44 per annum.
From 1 July 2000 until 31 December 2002, Enwerd was not required to pay Goods & Services Tax (‘GST’) on the rental received from BDS under the BDS Lease, as the BDS Lease was executed prior to the introduction of GST laws and the transitional rules applied.
Under clause 11 of the BDS Lease and Item 7(2) of the Schedule to the BDS Lease, a rental review was required to be held on 1 January 2003. As that was the first opportunity for a rental review since the introduction of the GST, Enwerd was required to pay GST on the rental received from BDS from the date of that review onwards.
Enwerd chose to increase the rental paid by BDS by 3% per annum in accordance with clause 11(2) of the BDS Lease, and further sought to recover the GST charges from BDS.
I verily believe that on or around 16 December 2002 a tax invoice for rental for the Premises for January 2003 was sent by mail from Enwerd to BDS, care of its director, Damian Boylan, in accordance with Enwerd’s usual practice. The tax invoice for the amount of $66,281.49 included an amount of $6,025.59 for GST. Now produced and shown to me and marked with the letters ‘GPK-2’ is a true copy of that invoice.
One or around 30 January 2003 I received a telephone call from Damian Boylan. He asked me why GST had been charged upon the rental.
I was aware that Damian Boylan was a director of BDS at the time, and that he was also one of the guarantors under the BDS Lease, and that he therefore had authority to discuss the rental payments with me. I accordingly discussed the matter of the rental amounts and the GST with him.
I explained to Damian Boylan that Enwerd had reviewed the rental under the BDS Lease to provide for a 3% increase and GST being charged upon rental payments from 1 January 2003 onwards. I further explained to Damian Boylan that, since as I understood it the premises were being used for business purposes, the GST paid by BDS to Enwerd could be claimed as an ‘input credit’ against BDS’s liability for GST.
During the course of that conversation, Damian Boylan, on behalf of BDS, agreed to pay the GST being charged on the rental due under the BDS Lease. He said that he agreed to that because BDS could obtain an input tax credit for the amount of the GST.
From that date onwards, BDS accepted liability for the GST component of the rental and paid it to Enwerd without complaint.
Terms of the Lease
The lease provided for the payment of rental. By clause 11, it provided for rent review as follows:
“11. RENT REVIEW
(1)Subject to the application of the market rent determination provisions in clause 11(2), the new annual rent to apply from the date in each year referred to in item 7(1) of the Schedule (any one of which dates is herein called ‘the rent review date’) shall be the greater of –
(a)an amount being the annual rent payable for the year immediately preceding the rent review date multiplied by 1.03; or
(b)an amounted calculated as follows:
A + M x
Where:
Ais the annual rent to apply from the rent review date;
Mis the annual rent payable immediately prior to the rent review date;
Dis the Consumer Price All Groups Index for Melbourne published by the Australian Bureau of Statistics (‘Bureau’) in respect of the quarter ending immediately prior to the last preceding rent review date or in the case of the first review of rent, the quarter ending immediately prior to the commencement date of this Lease;
Nis the Consumer Price All Groups Index for Melbourne published by the Bureau in respect of the quarter ending immediately prior to the rent review date.
In the event that the Bureau amends the reference base of the Consumer Price All Index for Melbourne then, to preserve continuity of calculation, N shall be adjusted arithmetically to make N at the rent review date correspond with the reference base to D.
If the Bureau ceases to calculate or publish the Consumer Price All Groups Index for Melbourne, there shall be substituted an index agreed upon by the Lessors and the Lessee or, in default of agreement, selected by an expert appointed by the President of the Law Institute of Victoria as an index which most closely reflects changes in the cost of living in the City of Melbourne. All costs incurred in selecting an index as aforesaid shall be borne equally by the Lessors and the Lessee.
The Lessee shall pay to the Lessors within fourteen days of the publication of N by the Bureau the difference (if any) between the rent actually paid since the rent review date and the rent calculated as payable in accordance with this clause.
(2)On the date or dates referred to in item 7(2) of the Schedule and on the first day of any renewed term (any one of which dates is herein called ‘the market rent determination date’), failing agreement as to the rent to apply for the succeeding year of the term from the market rent determination date or for the first year of any new term, the rent shall be the greater of –
(a)an amount being the annual rent payable for the year immediately preceding the rent review date multiplied by 1.03; or
(b)an open market rent determined by a valuer appointed at the request of the Lessors by the President for the time being of the Real Estate Institute of Victoria or its successor who shall –
(i)have at least five years’ experience in determining the market rent value of commercial or industrial premises of comparative or larger size;
(ii)act as an expert and not as an arbitrator;
(iii)accept written submissions from the Lessors and the Lessee within 30 days from the date written notice of his or her appointment is given by the Lessors to the Lessee; and
(iv)make a determination within sixty days from the date of his or her appointment.
If the valuer so appointed does not make a determination within 60 days from the date of his or her appointment, the Lessors may request the President for the time being of the Real Estate Institute of Victoria or its successor to appoint another valuer on the same terms as set out in this clause.
All costs and charges in relation to the valuer’s determination shall be borne equally by the Lessors and the Lessee.
The Lessors shall not, by reason of the Lessors’ failure to appoint a valuer by the market rent determination date or within a reasonable period thereafter, forfeit their right under this clause to have the rent reviewed as at the market rent determination date so long as the open market rent is determined by a valuer before the next market rent determination date.
Until the open market rent has been determined, the Lessee shall pay to the Lessors monthly rent in advance being one-twelfth of the rent determined as payable by applying clause 11(1).
Within 14 days after the market rent has been determined, the Lessee shall pay to the Lessors the amount (if any) which equals the difference between the monthly amount paid since the market rent determination date and the new monthly rent so determined.
(3)Notwithstanding the application of the market rent determination provisions set out in clause 11(2) the new annual rent to apply from the date or dates referred to in item 7(2) shall not be more than the annual rent payable for the year immediately preceding the market rent determination date multiplied by 1.06.”
By clause 17, the lease provided for a guarantee and indemnity as follows:
“17. GUARANTEE AND INDEMNITY
(1)The Guarantors, in consideration of the Lessors having entered into this Lease at the Guarantors’ request –
(a)guarantee that the Lessee will perform all obligations under this Lease for the term and any term of a new lease or leases and during any period of overholding;
(b)shall pay on demand any amount which the Lessors are entitled to recover from the Lessee under this Lease; and
(c)indemnify the Lessors against all loss resulting from the Lessors having entered into this Lease, whether from the Lessee’s failure to perform the Lessee’s obligations or from this Lease being or becoming unenforceable against the Lessee.
(2)The liability of the Guarantors will not be affected by –
(a)the Lessors granting the Lessee or a Guarantor time or any other indulgence or agreeing not to sue the Lessee or another Guarantor;
(b)failure by any Guarantor to sign this Lease; or
(c)the assignment, sub-letting, parting with possession or variation of this Lease.
(3)The Guarantors acknowledge that –
(a)the Lessors may retain all moneys received including dividends from the Lessee’s bankrupt estate and need allow the Guarantors a reduction in the Guarantors’ liability only to the extent of the amount received;
(b)the Guarantors shall not seek to recover moneys from the Lessee to reimburse the Guarantors for payments made to the Lessors until the Lessors have been paid in full;
(c)the Guarantors shall not prove in the bankruptcy or winding up of the Lessee for any amount which the Lessors have demanded from the Guarantors; and
(d)the Guarantors shall pay to the Lessors all moneys which the Lessors refund to the Lessee’s liquidator or trustee in bankruptcy as preferential payments received from the Lessee.
(4)If any of the Lessee’s obligations are unenforceable against the Lessee, then this clause is to operate as a separate indemnity and the Guarantors indemnify the Lessors against all loss resulting from the Lessors’ inability to enforce performance of those obligations AND the Guarantors shall pay the Lessor the amount of the loss resulting from the unenforceabilty.
(5)Each Guarantor is bound jointly and severally.”
Relevant legal principles
The relevant legal principles governing discharge of a guarantor from liability by reason of material variation of the principal contract were not in dispute. In the leading case, Ankar Pty Ltd v National Westminster Finance Aust Ltd (“Ankar”),[1] the High Court (Mason ACJ, Wilson, Brennan and Dawson JJ) considered “the special principle said to apply to a surety contract, that the surety is discharged from its obligations by the creditor’s breach of that contract, so long at any rate as the breach materially prejudices the interests of the surety.”[2]
[1](1987) 162 CLR 549.
[2]Ibid at 557.
Their Honours appeared to accept the view expressed in English cases that –
“…the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety’s rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety’s risk, eg, a reduction in the debtor’s debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety. The foundation of the rule is that the creditor, by varying the principal contract or extending time, has altered the surety’s rights without consulting it though the surety has an interest in the principal contract, and that the creditor cannot be permitted to do.”[3]
[3]Ibid at 559.
In Ankar, the surety had secured the obligations of a lessee under a lease agreement. The surety agreement required the lessor to notify the surety of default under the lease or of the assignment of the lessee’s interest. The lessor failed to fulfil those requirements. The High Court held that the breaches discharged the surety from liability. The High Court majority construed the relevant requirements in the surety agreement as conditions, holding that the doctrine of strictissimi juris indicated that, where there is doubt as to the status of a provision in a guarantee, it should be resolved in favour of the surety.
The “special principle” applies to cases where a particular liability is guaranteed, but it is altered or varied without consent, or the surety has certain contractual rights which are disregarded.
The decision in Ankar has recently been reaffirmed by the High Court in Andar Transport Pty Ltd v Brambles Pty Ltd[4] in which Gleeson CJ, McHugh, Gummow, Hayne and Heydon JJ[5] approved the statement in Ankar[6] that –
”At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. The doctrine of strictissimi juris provides a counterpoise to the law’s preference for a construction that reads a provision otherwise than as a condition. A doubt as to the status of a provision in a guarantee should therefore be resolved in favour of the surety”.
[4](2004) 78 ALJR 907.
[5]Ibid at 911.
[6]Ankar (1987) 162 CLR 549 at 561.
A number of limitations have been applied to the special principle endorsed in Ankar. Liability will not be discharged by a material variation which increases the surety’s risk in circumstances where the guarantee provides that it will apply notwithstanding a variation of the principal contract, or where the guarantor consents to the variation.
Particularly relevant to the present case is the exception where the contract of guarantee or third party mortgage expressly permits variation.
Further, the plaintiff argues that the third defendant consented to any variation. In Wren v Emmett Contractors Pty Ltd,[7] Menzies J recognised that where the guarantor requested an extension of time for payment in his capacity as director of the corporate debtor, “he cannot be heard to say, when sued upon the guarantee, that the extension was given without his consent. Mere knowledge of the variation of the contract or the giving of time does not of itself amount to consent, but for a guarantor on behalf of the principal debtor to bespeak time to pay what is owing betokens his concurrence with the giving of time to pay. Were this is not so the law would be out of touch with reality.”[8]
[7](1969) 43 ALJR 213.
[8]Ibid at 220.
The Parties’ Principal Contentions
At the hearing of the separate question on 8 March 2005, the issues in dispute were greatly reduced. The third defendant did not dispute the plaintiff’s title to the reversion of the premises, the validity of the assignment of the indemnity and guarantee, or the validity of the notices.
The third defendant argued that he was not liable under the guarantee because the agreement between BDS and the plaintiff that BDS would pay GST on 30 January 2003 constituted a material variation which altered the third defendants’ rights as guarantor in such a way as to increase the guarantor’s risk.
Mr Collins, senior counsel for the third defendant, argued that the agreement by BDS to pay GST was a variation and not simply the implementation of the rental review procedure provided for in clause 11 of the lease.
Mr Collins also contended that, although clause 17(2)(c) of the lease provides that “the liability of the Guarantors will not be affected by the assignment, sub‑letting, parting with possession or variation of this lease”, the term “variation” should be read down, contra proferentum, and by reference to the preceding terms ejusdem generis, to mean only a variation of the lease which permitted a party other than the lessee to occupy or possess the premises.
Further, Mr Collins argued that the plaintiff had not discharged the onus, which it bore, of establishing that the third defendant consented to the variation.
Mr Hayes, senior counsel for the plaintiff, conceded that BDS as lessee was not prima facie liable to pay GST on rental following the introduction of the tax by legislation in 1999.
As such, the agreement by BDS and the plaintiff that BDS would pay GST could constitute an additional risk to the surety, although BDS contemplated recouping the tax as an input credit. Mr Hayes argued that nevertheless, the assumption of liability to pay GST was not a variation of the lease. The lease itself expressly provided for the setting of the rent to apply for the succeeding year by agreement of the parties. On that basis, the agreement concluded by BDS and the plaintiff was simply the implementation of an alternative means of rent review to the calculation of market rent by reference to the procedures set out in sub-clauses 11(2)(a) and (b).
Mr Hayes also contended that if the assumption of liability for GST constituted a material variation of the principal contract, it did not discharge the liability of the third defendant under the guarantee, because clause 17(2)(c) expressly provided that variation of the lease would not affect the liability of the guarantor. While he conceded, in this context, that any ambiguous term of a guarantee must be construed contra proferentum, he submitted that there was no ambiguity in clause 17(2)(c).
Mr Hayes further submitted that it could be inferred from the matters deposed to by Messrs King and Werdiger, that the third defendant had consented to any material variation. The third defendant had led no evidence to rebut the inference.
Application
The assumption by BDS of the liability to pay GST pursuant to the agreement between BDS and the plaintiff constitutes an added liability, notwithstanding the contemplation and probability that BDS could recoup the GST at the end of each month, as an input credit. If the assumption of that liability by agreement constituted a variation of the lease, in my view, it would be of a material character sufficient, prima facie, to discharge the surety from liability. In this context, the creditor bears the burden of establishing that the variation can be beneficial to the surety only or cannot in any circumstances increase the surety’s risk.[9] Further, “The mere possibility of detriment is enough to bring about the discharge of the surety.”[10]
[9]Ankar (1987) 162 CLR 549 at 559.
[10]Ibid at 560.
In my view, however, the agreement that BDS would assume liability for GST did not constitute a variation of the lease. Rather, it was, as the plaintiff contended, merely the implementation of a means of rent review provided by the lease, alternative to the other market rent determination mechanisms prescribed in clause 11(2).
Clause 11(1) provides that, “subject to the application of the market rental determination provisions in clause 11(2),“ the new rental shall be the greater of an amount calculated under clause 11(1)(a) or (b).
Clause 11(2) of the lease, to which clause 11(1) is subject, relevantly provides that “failing agreement as to the rent to apply for the [relevant year] the rent shall be the greater of –
(a)the amount being the annual rent payable for the year immediately preceding the rent review date multiplied by 1.03; or
(b)an open market rent determined by a valuer … “
Clause 11(3) of the lease provides “notwithstanding the application of the market rent determination provisions set out in clause 11(2) the new annual rent ... shall not be more than the annual rent payable for the year immediately preceding the market rent determination date multiplied by 1.06”.
It could be argued that if “agreement” is comprehended by the term “market rent determination provisions” in clause 11(2), then the parties are prohibited from agreeing on an amount greater than that set by clause 11(3). On the other hand, it could be argued that if “agreement” is not comprehended by the term “market rent determination provisions in clause 11(2)”, then the provisions in clause 11(1) are not subject to, and would prevail over, an agreement made under clause 11(2).
Depending on which construction were adopted, there would be a different ceiling imposed either by clause 11(1) or 11(3) on the rental which could be agreed by the parties.
A third construction is that the agreement of the parties is recognised in clause 11(2) as a valid means of establishing rental, which is alternative to either “the market rent determination provisions” in clause 11(2) or the provisions in clause 11(1), and is not subject to a limitation imposed by either clause 11(1) or 11(3).
In my opinion, the third is the most persuasive construction of clause 11 viewed as whole. Clause 11(2) expressly recognises that the market rent determination provisions in 11(2)(a) and (b) will apply only “failing agreement as to the rent” for the relevant period. Agreement is a means distinct from, and paramount to, those provisions, which themselves expressly prevail over clause 11(1), although they are subject to clause 11(3).
While the objective of imposing an absolute limit on rental in the absence of agreement is clear, a restriction on the parties’ freedom to agree on a higher rental would advance no obvious commercial purpose.
While the third defendant argued that, in the present case, the parties’ arrangement constituted a market rent determination under the lease and a separate additional agreement that BDS pay GST, in my view, that is an artificial dissection of the transaction that occurred. Rather, there was an agreement pursuant to clause 11(2) of the lease between the plaintiff and BDS to pay a global amount including GST.
As I have found that there was no material variation of the lease, it is unnecessary to determine the scope of the “variation” referred to in clause 17 of the lease, or whether the third defendant consented to any variation. For the sake of completeness I do so.
The reference to “variation of the lease” in clause 17(2)(c) of the lease is, in terms, unqualified. In my opinion, the term should bear its literal meaning. There is no warrant to read it down by reference to assignment of the lease, subletting or parting with possession.
The third defendant argued that, as the first three terms in clause 17(2)(c) all “permit persons other than the lessee to have occupation or possession of [the demised premises],” the term “variation of the lease” in clause 17(2)(c) should be restricted to variations which also permit that outcome.
In my opinion, there is no ambiguity or any sound contextual basis for such a restrictive gloss on the literal meaning of “variation of the lease” in clause 17(2)(c).
Moreover, it is difficult to give meaningful content to the restriction for which the third defendant contends.
All circumstances in which persons other than the lessee could become entitled to possession of the demised premises appear to be covered by assignment, sub-letting or where the lessee “parts with possession”. The guarantor is to remain liable in all such circumstances.
No variation of the lease (as distinct from an assignment, subtenancy or parting with possession) could entitle a person other than the lessee to possession (as distinct from occupation) of the premises, as possession in the lessee is the defining hallmark of a lease. Mr Collins submitted that a permissible “variation” could be the deletion of the requirement in clause 4(3) of the lease that the lessors’ consent is required for assignment, subletting or parting with possession. Clause 4(3) in any event provides that such consent shall not be unreasonably withheld.
The defendants’ construction of clause 17(2)(c) is, in my view, unpersuasive. It disregards the plain literal meaning and produces no clear, substantial content for the term “variation of the lease” which is consistent with commercial common sense.
The plaintiff bore the burden of establishing that the guarantor consented to any variation. The affidavits of Messrs King and Werdiger, which were in evidence, establish that the third defendant was the father of the second defendant and that both were directors of BDS until 8 February 2000. The affidavits further establish (and it is not disputed) that the second defendant, as director of BDS, and a guarantor, agreed to the imposition of GST on 30 January 2003. I am not satisfied that the material on which the plaintiff relies raises an inference, which, unrebutted, justifies the conclusion that the third defendant knew of, or consented to, the imposition of GST on BDS.
Conclusion
In my opinion, the agreement of the plaintiff and BDS on or about 30 January 2003 that BDS would assume liability for GST did not constitute a variation of the lease. If it were a variation, it would be material in the relevant sense, but would not operate to discharge the third defendant’s liability under the guarantee, due to the operation of clause 17(2)(c) of the lease.
It follows that, in my opinion, the third defendant is liable to the plaintiff pursuant to the guarantee contained in clause 17 of the lease.
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