Erom Pty Ltd v Croft

[2004] WADC 251

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CHAMBERS

LOCATION:   PERTH

CITATION:   EROM PTY LTD -v- CROFT [2004] WADC 251

CORAM:   DEPUTY REGISTRAR HEWITT

HEARD:   8 NOVEMBER 2004

DELIVERED          :   14 DECEMBER 2004

FILE NO/S:   CIV 1225 of 2003

BETWEEN:   EROM PTY LTD (ACN 008 918 876)

Plaintiff

AND

JOHN CROFT
Defendant

LAURENCE LAMBRO ANTHONY ZIATAS
Third Party

Catchwords:

Practice - Extension of time for compliance with springing order - Matters to be considered - Action on guarantee - Whether defence on the merits - Turns on its own facts

Legislation:

Fair Trading Act 1987

Trade Practices Act 1974

Result:

Time extended
Default judgment set aside

Representation:

Counsel:

Plaintiff:     Mr M A Blundell

Defendant:     Mr P Robinson

Third Party                   :     Not applicable

Solicitors:

Plaintiff:     Solomon Brothers

Defendant:     Williams & Hughes

Third Party                   :     Pynt & Partners

Case(s) referred to in judgment(s):

FAI General Insurance Co Ltd v Southerncross Exploration NL (1988) 165 CLR 268

Case(s) also cited:

Ankar Proprietary Limited v National Westminster Finance; Arnick Holdings Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549

Bridgestone Australia Ltd v GAH Engineering Pty Ltd [1997] 2 QD R 145

Brown v Aimers [1934] NZLR 414

Chan & Anor v Cresdon Proprietary Ltd (1989) 168 CLR 242

Farrow Mortgage Services Pty Ltd (in liq) v Williams [1994] ANZ ConvR 41

General Steam-Navigation Co v Rolt (1858) 141 ER 572

Hancock v Williams (1942) 42 SR(NSW) 252

Markwell Bros v Bennett (1904) QWN 13

Matton v Lipscomb (1895) 16 LR (NSW) Eq 142

Moschi v Lep Air Services Ltd & Ors [1973] AC 331

National Australia Bank Ltd v Firewood Processors Pty Ltd & Ors [2003] WASC 88

Nelson Fisheries Limited v Boese (1975) 2 NZLR 233

Payton v S G Brookes & Sons Pty Ltd [1977] WAR 91

Polack & Anor v Everett (1876) 1 QBD 669

Rees v Berrington (1795) 30 ER 765

Sainwell Pty Ltd v Williams, unreported; SCt of WA; Library No 950022; 20 January 1995

Samuell v Howarth (1917) 36 ER 105

Strange v Fooks (1863) 66 ER 765

Trade Credits Ltd v Burns & Anor (1979) 1 NSWLR 630

Wardens and Commonalty of the Mystery of Mercers of the city of London v New Hampshire Insurance Co [1991] 1 WLR 1173

Williams & Anor v Frayne & Anor (1937) 58 CLR 710

1. DEPUTY REGISTRAR HEWITT:  In this action an order was made that the defendant give discovery of certain identified classes of documents by 22 April 2004.  On 16 April 2004 the defendant's swore an affidavit purportedly in compliance with that order and that document was served on 5 May 2004.  On 11 May 2004 the plaintiff applied for a springing order and on 24 May 2004 the Court ordered that if  proper compliance with the order for further and better discovery was not given within ten days judgment would be entered against the defendant.  On 2 June the defendant swore a further affidavit of discovery which was not filed at that time and the time fixed by the order expired on the 3 June 2004.  On 14 June 2004 the defendant served the plaintiff with a further affidavit of discovery together with that sworn on the 2 June 2004 each of which failed to satisfy the requirements of the order.  On 17 June 2004 the plaintiff filed default judgment for failing to comply with the terms of the springing order.  On 31 August 2004 the defendant filed an affidavit which satisfied the requirements of the order which had been originally made on 25 March 2004. 

2. Throughout this process there were a number of letters written by the plaintiff's solicitors to the defendant's solicitors indicating their belief that proper compliance with the order had not been made and giving the defendant's solicitor some guidance as to the manner in which compliance could be achieved.  Those letters were apparently ignored. 

3. That unhappy series of events has now spawned the applications which are before me for determination, those being an application to set aside the default judgment which was filed on 29 July 2004 and subsequently an application for an extension of the time fixed by the springing order which was filed on 1 September 2004.  Of those two applications the second is the more technically correct application but for the purposes of the exercise either of the applications would do.  In essence the defendant wishes me to action the principles contained in FAI General Insurance Co Ltd v Southerncross Exploration NL (1988) 165 CLR 268. That case establishes the principle that notwithstanding an entry of judgment the court retains the power to extend the time fixed by a springing order and may do so in a manner to deprive a party of a right of judgment which had accrued under that order.

4. Issues of this kind have come before the courts on a number of occasions and there are a number of statements of the necessary matters which must be canvassed in order for such an application to succeed.

5. The judgment is a regular judgment and in my view the necessary matters to be canvassed have been correctly set out by counsel for the applicant in his argument before me and they are:

   1.the conduct of the defendant and the reason that the springing order was not complied with;

   2.that there must be demonstrated to be a defence on the merits and;

   3.the justice of the case.

6. In this case three separate affidavits were prepared by the solicitor then acting for the defendant in purported compliance with order and springing order.  None of those affidavits was in proper form and indeed it is conceded that they are so far adrift of what was required that they should not be regarded as complying in any sense with the requirements of the orders.  It is a puzzle why that should be so because the order itself basically provides a recipe which, if followed in the affidavit, would satisfy its terms.  All that is required is that the deponent of the affidavit turn his mind to each of the classes of documents which have been identified in the order and state whether any documents of that kind are or ever have been in his custody power and possession and thereafter enumerate those documents and explain the whereabouts of them in the event that they are no longer in possession.  One would have thought that not to be a particularly complicated task and one which would be accomplished without difficulty by a certificated practitioner.  None the less the Court file bears testament to the fact that the solicitor for the defendant struggled with the order to the extent that three separate affidavits were prepared none of which satisfied the requirements of the order.  Putting the matter simply it appears to me that the defendant was let down by his solicitor.  It is suggested by counsel for the plaintiff that the defendant should have appreciated that the affidavits were not satisfactory and would not satisfy the terms of the order.  I reject that proposition.  The defendant engaged a certificated practitioner to represent him in this action and he was entitled to, and in my view clearly did, rely on the expertise of that practitioner to satisfy the requirements of the order.  That the requirements were not satisfied is not a matter for which the defendant can be personally responsible.  On that basis I am satisfied that there is a satisfactory explanation advanced by the defendant for his failure to comply with the terms of the orders which were made and I now turn to the more contentious issues which are raised by this application namely whether the defendant has a defence on the merits. 

7. It is first to be noted that the plaintiff brought a summary judgment application in this action at an earlier stage and that application was dismissed and the defendant given an unconditional leave to defend.  It is clear from the written decision which was given by the Deputy Registrar who heard that application that the defendant survived the application by quite a narrow margin.

8. In order to understand the summary judgment application and the arguments which have now be advanced to me, it is necessary to explain sufficient of the case to place the matters in context. 

9. The plaintiff sues the defendant as the guarantor of a loan made by the plaintiff to a company called Jadetex Minerals Pty Ltd.  The plaintiff alleges there has been default in repaying the monies which were advanced to Jadetex and as a consequence the plaintiff called on the defendant to honour his guarantee and pay the monies due.  The action is replete with complications and several alternative causes of action are advanced within the statement of claim.  The difficulties which face the plaintiff stem from the fact that it was intended that the borrower grant a Charge to secure the repayment of the monies advanced and the guarantee formed a part of the Charge produced to satisfy that obligation.  Unfortunately from the point of view of the plaintiff the Charge which was prepared named a company called Regalbird Pty Ltd as the mortgagor rather than the company to which the monies were advanced namely Jadetex Pty Ltd. 

10. The defendant initially defended the summary judgment application on the basis that his signature to the relevant deed was a forgery however, upon a questioned document examiner having the opportunity to examine the original document he has retreated from that proposition and now contends that although the signatures appearing on the documents are his, those signatures were obtained by either transplanting the relevant page from some other document to the deed upon which the plaintiff relies or alternatively as a consequence of him signing the relevant page in blank and his solicitor including it in the document in question.  The first of the propositions is a little hard to understand because the defendant contends that he never had dealings with Erom Pty Ltd the plaintiff in this action and if that is accepted it is difficult to understand how there would be available a document with his signature appearing in two places between which appears the sealing clause, properly executed, of the company Erom Pty Ltd.  One would pause to ask the question if the defendant, as he says, had no dealings with Erom Pty Ltd from whence would come a signature page duly executed by himself and that company which could be extracted from some other document and included in this.  It is obviously a difficult proposition to sustain and either the plaintiff is mistaken as to not having any previous dealings with Erom Pty Ltd or alternatively that explanation is without substance.  I must say that I tend towards the latter view.  The other explanation offered is that the plaintiff signed the relevant page in blank and it was subsequently added in to the Charge document which is relied upon the plaintiff.  On that score my view is that there would be very little in the way of defence to be gained by such a proposition since if the document was so signed and delivered the defendant would be bound by the use to which it was put by the agent to whom he delivered it, in this case his solicitor. 

11. The plaintiff has brought the High Court decision of Toll (FGT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52, a case decided on 11 November 2004 to my attention as bearing on this issue. In that case the issue was whether a company was bound by contractual conditions on the reverse side of the form in circumstances in which its officer who signed the form had not read the conditions overleaf. Those conditions contained an exclusion clause. It was held the exclusion clause formed part of the contract. That case is only vaguely relevant to the issue before me but is indicative of the fact that carelessness or inattention has limited prospects of supporting a defence.

12. In the present case the defendant is alleging that he signed the execution page and gave it to his solicitors.  The only conclusion that is available is that the defendant intended the page to be included in a legal document by that solicitor and in my opinion he is estopped, having so armed his solicitor, from arguing that the contract in which the page was eventually incorporated is not binding on him.

13. On my analysis therefore the defendant was extremely lucky to escape the summary judgment application which was brought against him on the defence which he then advanced.  The matter does not stop there however, because it is necessary to examine the cause of action which is pursued by the plaintiff to be satisfied that it is in fact a sound cause of action and one for which the defendant is unable to offer any realistic defence.  In doing that I think it is instructive to look at the judgment which was entered and contrast that with the Prayer for Relief in order to understand which of the various causes of action pleaded in the statement of claim has been relied up by the plaintiff to support the judgment entered.  The judgment was for a money sum and after some amendments which were allowed on the date of the hearing of these applications now stands at $231,607.38.  Certain of the causes of action pursued by the plaintiff in the writ are automatically excluded and I refer particularly to those which are set out in par (B) of the Prayer for Relief which require either a declaration or rectification of the relevant Charge document to refer to Jadetex in lieu of Regalbird.  There was never any motion for such a declaration or for rectification of the document and therefore insofar as the plaintiff has brought causes of action which depend on such orders being made the judgment was not based on them.  Furthermore there is a claim under the Trade PracticesAct1974 but again it is clear that the judgment is for a money sum calculated to be due under the terms of the deed. By and large damages for breach of s 52 of the Trade Practices Act or s 10 of the Fair Trading Act 1987 are to be assessed on a tortious basis whereas the judgment with which I am concerned has clearly been calculated on a contractual basis and therefore that cannot be the cause of action upon which the plaintiff relied in order to enter the judgment.  The final cause of action is an agreement pleaded in par 3 to 6 of the statement of claim.  That agreement is said to have been made between the parties in October 1996 under the terms of which the plaintiff agreed to loan $100,000 to Jadetex and the defendant agreed to guarantee the loan.  In the particulars of par 3.2 there is included as particular (a) "the application for the loan and the offer of the guarantee was made by Jadetex and Croft respectively by their agent Mr Laurence Ziatas in a letter dated 4 October 1996 to the plaintiff's agent Mr Dominic Vincent Martino." 

14. It is next pleaded that on 7 October 1996 the plaintiff advanced $100,000 to Jadetex pursuant to the agreement and on the security of the guarantee and that Jadetex failed to repay the sum of $100,000 and despite demand the defendant has failed to repay that sum to the plaintiff.  The letter 4 October 1996 is shown at p 8 of the affidavit of Frank Raymond Jasper sworn in support of the application for summary judgment.  The letter is from solicitors Bannerman Ziatas and Russell and it is instructive to recite its exact terms.

    "Mr D V Martino
    Deloitte Touche Tohmatsu
    Level 16, Central Park
    152-158 St George's Tce
    PERTH WA  6000

    Dear Domenic,

    $100,000.00 LOAN FACILITY -
    EROM PTY LTD TO JADETEX MINERALS PTY LTD

    I confirm your advice that your client Erom Pty Ltd is prepared to advance to my client Jadetex Minerals Pty Ltd the sum of $100,000 for three months at an interest rate of 20% per annum.

    I am in the process of preparing a Charge over Jadetex Minerals Pty Ltd whose assets include various mining tenements containing nickel and chrysoprase, substantial interests in various gold mining tenements and soon the Laverton Battery.

    Mr John Croft of Jadetex Minerals Pty Ltd is prepared to provide a personal guarantee and I will incorporate this into the Charge.

    The funds are required as a matter of urgency, therefore I would be grateful if, subject to my having the Charge signed today, you would forward a cheque for the $100,000.00 to my office by not later than 3.00pm.

    Should you have any difficulties in doing this or have any queries, please do not hesitate to telephone me.

    Yours faithfully,

    L.L.A. ZIATAS"

15. Relevantly it is be noted that the solicitors Messer Bannerman  Ziatas & Russel stated "Mr John Croft of Jadetex Minerals Pty Ltd is prepared to provide a personal guarantee and I will incorporate this into the Charge". 

16. In my view such a statement in a letter by a solicitor is incapable of constituting a guarantee by the client.  For a start it does not purport to immediately guarantee anything but simply indicates that the defendant was prepared to execute a personal guarantee and his solicitor intended including that guarantee in a Charge by the Company to secure the loan.  Furthermore the only authority which is pleaded to reside in the solicitors acting on behalf of the defendant would presumably arise from their appointment as solicitors and that would not ordinarily include the ability to execute guarantees binding on a client. 

17. My conclusion therefore in respect of the cause of action upon which the plaintiff has purportedly entered a judgment it is that that cause of action is not sustainable.  In my view the pleading itself would not sustain a judgment but in any event the merest examination of the relevant evidence indicates that the cause of action could not be made out at trial.  Although that analysis, in my view, entitles the defendant to have the judgment set aside that would be a pointless exercise in the event that the plaintiff has a clear cut case in other respects.

18. The materials before me establish with a reasonable level of clarity that it was intended that the Charge prepared by Mr Ziatas would be over the assets of Jadetex but due to some misunderstanding which was not explained Regalbird was thought to be the successor of Jadetex and as a consequence named as the mortgagor.  Although that might well entitle the plaintiff to rectification of the deed executed by the defendant I consider there is a significant problem in regard to that rectification. 

19. It is essential for all the parties to the deed to be before the Court before the deed between them could be rectified.  It was suggested by counsel for the plaintiff that it would be possible to rectify the deed without Jadetex being a party and that the effect of such rectification would not impinge upon that company.  In my view that is simply not a possibility.  The terms of the guarantee were to guarantee the due performance by the borrower of the terms of the mortgage.  In order for there to be anything to guarantee there must be an obligation on Jadetex to perform the terms of the deed and if there is not then there is no substance to the guarantee and it secures nothing.  Therefore if the deed is rectified Jadetex must be a party to the action and bound by such rectification.  Additionally, a guarantor has certain rights against the principal debtor.  It is not possible to simply rectify part of the deed without rectifying the whole.  The defendant as a guarantor must have the rights which as a matter of law are conferred on him against the principal debtor.  That could only be achieved in the event that the rectification was binding on all parties to the deed such that Jadetex stood in the shoes of Regalbird as the mortgagor of named in the Charge.  A further point is that the guarantor, if he pays out the amount of the debt, would be entitled to the benefit of the Charge and that benefit would be utterly illusory unless Jadetex was installed as the mortgagor under the terms of the deed.  Therefore insofar as this plaintiff seeks to rectify the deed it is my view that remedy is not available in this action because the proper parties have not been joined.  A similar line of reasoning applies to the Prayer that a declaration be made identifying the proper mortgagor of the Charge as Jadetex.  Again in my view it is essential that Jadetex be a party to this proceeding before such a declaration can be made. 

1. On the case pleaded by the defendant in par 3 to 6 the plaintiff would appear to rely on a common law guarantee and all the defences available to a guarantor would be available to the defendant.  Likewise there is nothing within the terms of the guarantee contained in the deed which would override the principle that a guarantor is discharged from his guarantee in the event that the creditor varies the terms of the contractual arrangements between itself and its debtor.  The terms of the deed also refer to an indemnity granted by the defendant under the terms of the deed but the manner of the wording of the clause leaves me some doubt whether it is truth an indemnity but merely a guarantee.  That is not a point with which I need be concerned because the statement of claim pleads the relationship between the defendant and the plaintiff as one of guarantee. 

2. It is a well known proposition of law that a creditor who enters a binding arrangement to extend time or grant other indulgence to a borrower thereby discharges the liability of the guarantor unless there are within the contractual terms of the guarantee provisions which prevent such an outcome.  Halsbury's Laws England Fourth Ed Vol 20 par 314.

3. It is suggested by the plaintiff that cl 7b of the Guarantee protects it from the consequences of the granting of an indulgence.  That clause is in the following terms

   "That this Guarantee shall be a continuing Guarantee irrespective of any sum or sums which may be paid into the account of the Mortgagor with the Mortgagee at any time during the continuance of the credit which may be given by the Mortgagee to the Mortgagor and shall not be determined by the death or liquidation of the Mortgagor or any guarantor or other co-surety for the Moneys Hereby Secured."

4. I am unable to agree.  "A continuing guarantee is one which extends to a series of transactions and is not exhausted by nor confined to a single credit or transaction" .  Halsbury's Laws of England 4^th Edition Volume 20 par 101.  The fact that the guarantee expressed to be a continuing guarantee does not impinge on the effect on the liability of a guarantor of the creditor granting binding indulgences to the debtor.

5. A proper example of a clause which if included in the guarantee would have the effect argued for appears at 6 (12)(a) which is in the following terms :

   "The granting of time, credit or other indulgence or concession to the Mortgagor by the Mortgagee or by any compounding, comprise, release, abandonment, waiver, novation, variation, relinquishment or renewal or any securities documents of title, assets or rights of the Mortgagee against the Mortgagor or by any neglect or omission or by any other dealing matter or thing." ( shall not affect the liability of the mortgagor)

6. My conclusion therefore is that the defendant has defences to the plaintiff's claim of sufficient merit to enable him to defend the action that the time for compliance with the order should be extended and the judgment which was entered against the defendant should be set aside.  There are some complications concerning the issue of costs not the least of which is that the applicant seeks that his former solicitor be responsible for the payment of those monies.  It will be necessary to hear short argument in respect of that matter, however my inclination is that the order should be that the defendant pay the plaintiff's costs to be taxed on an indemnity basis but that there be a stay of execution on the costs so payable until further order to permit the issue of ultimate liability for those costs to be decided.  In addition to that I propose an order that the former solicitor of the defendant do attend and show cause why he should not be personally responsible for the payment of the costs required to be paid by the defendant to the plaintiff in respect of the present applications.