George 218 Pty Ltd v Bank of Queensland Ltd

[2015] WASC 434

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION:   GEORGE 218 PTY LTD -v- BANK OF QUEENSLAND LTD [2015] WASC 434

CORAM:   MITCHELL J

HEARD:   5 - 7 OCTOBER 2015

DELIVERED          :   16 NOVEMBER 2015

FILE NO/S:   CIV 2841 of 2013

BETWEEN:   GEORGE 218 PTY LTD

First Plaintiff

PRADA PTY LTD
Second Plaintiff

TINA MICHELLE BAZZO
Third Plaintiff

GUCCE HOLDINGS PTY LTD
Fourth Plaintiff

AND

BANK OF QUEENSLAND LTD
Defendant

Catchwords:

Banking and finance - Guarantees - Transfer of contractual rights pursuant to certificate of transfer issued under the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) - Whether 'all moneys' guarantee which did not secure any debt owing to the transferring body at the date of the transfer capable of securing debt subsequently owed to the receiving body - Whether obligations under guarantee modified without guarantor's consent - Effect of Code of Banking Practice - Whether notice of demand effective - Whether contracts preclude reliance on set off

Estoppel - Conventional estoppel - Whether limited to common assumption of fact and not law

Legislation:

Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth), s 22, s 43

Result:

Plaintiffs' claim dismissed
Judgment to be entered for defendant on its counterclaim

Category:    A

Representation:

Counsel:

First Plaintiff                :     Mr P G Clifford & Mr A P Rumsley

Second Plaintiff            :     Mr P G Clifford & Mr A P Rumsley

Third Plaintiff               :     Mr P G Clifford & Mr A P Rumsley

Fourth Plaintiff             :     Mr P G Clifford & Mr A P Rumsley

Defendant:     Ms K F Banks-Smith SC & Ms C A Petersen

Solicitors:

First Plaintiff                :     Alan Rumsley

Second Plaintiff            :     Alan Rumsley

Third Plaintiff               :     Alan Rumsley

Fourth Plaintiff             :     Alan Rumsley

Defendant:     Lavan Legal

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

Agtrack (NT) Pty Ltd v Hatfield [2005] HCA 38; (2005) 223 CLR 251

Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27

Amalgamated Investment & Property Co Ltd (in liq) v Texas Commerce International Bank Ltd [1982] 1 QB 84

Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549

Australian and New Zealand Banking Group Ltd v Manasseh [2015] WASC 34

Australian Goldfields NL (in liq) v North Australian Diamonds NL [2009] WASCA 98; (2009) 40 WAR 191

Barns v Queensland National Bank Ltd (1906) 3 CLR 925

Bell Group Ltd (in liq) v Westpac Banking Corporation [2008] WASC 239; (2008) 39 WAR 1

Birla Nifty Pty Ltd v International Mining Industry Underwriters Ltd [2014] WASCA 180; (2014) 47 WAR 522

Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269

Bunbury Foods Pty Ltd v National Bank of Australasia Ltd (1984) 153 CLR 491

Catlin v National Australia Bank Ltd [2004] WASC 135

Certain Lloyd's Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378

Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337

Coghlan v SH Lock (Australia) Ltd (1985) 4 NSWLR 158

Commonwealth Bank of Australia v Carotino (Australia) Pty Ltd [2011] SASC 42

Commonwealth Bank of Australia v Khoury [2013] NSWSC 1787

Commonwealth Bank of Australia v McArthur [2003] VSC 31

Commonwealth Bank of Australia v Oberdan [2000] SASC 428

Commonwealth v Verwayen (1990) 170 CLR 394

Con-Stan Industries of Australia Pty Ltd v Norwich Winterthur Insurance (Australia) Ltd (1986) 160 CLR 226

Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou [1986] 2 Lloyd's Rep 441

County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193

Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd [2000] QSC 50

Dan v Barclays Australia Ltd (1983) 57 ALJR 442; (1983) 46 ALR 437

Dobbs v National Bank of Australasia Ltd (1935) 53 CLR 643

Duffy Bros Fruit Market (Campbelltown) Pty Ltd v Gumland Property Holdings Pty Ltd [2007] NSWCA 7

Ethnic Interpreters and Translators Pty Ltd v Sabri-Matanagh [2015] WASCA 186

Falinski v Commonwealth Bank of Australia (Unreported, NSWCA, 6 February 1998)

Farrow Mortgage Services Pty Ltd v Hogg (1995) 64 SASR 450

Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503

Government Employees Superannuation Board v Martin (1997) 19 WAR 224

Grundt v The Great Boulder Proprietary Gold Mines Ltd (1937) 59 CLR 641

Gumland Property Holdings Pty Ltd v Duffy Bros Fruit Market (Campbelltown) Pty Ltd [2008] HCA 10; (2008) 234 CLR 237

Jones v Dunkel (1959) 101 CLR 298

K Lokumal & Sons (London) Ltd v Lotte Shipping Co Pte Ltd (The August Leonhardt) [1985] 2 Lloyd's Rep 28

Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361

Laing O'Rourke Australia Construction Pty Ltd v Samsung C & T Corporation [2015] WASC 237

Legione v Hateley (1983) 152 CLR 406

Mineralogy Pty Ltd v Sino Iron Pty Ltd (No 6) [2015] FCA 825

Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd [2005] HCA 9; (2005) 222 CLR 194

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37

Nannup Timber Processing Pty Ltd v Minister for Commerce [2014] WASC 438

Norman v FEA Plantations Ltd [2011] FCAFC 99; (2011) 195 FCR 97

Oswal v Commonwealth Bank of Australia [2013] WASCA 58

Plaintiff S4/2014 v Minister for Immigration [2014] HCA 34; (2014) 253 CLR 219

Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355

Rankin v Scott Fell & Co (1904) 2 CLR 164

Re Taylor; Ex parte Century 21 Real Estate Corporation (1995) 130 ALR 723

Saraceni v Mentha [2012] WASC 336; (2012) 269 FLR 12

St George Bank Ltd v Emery [2004] WASC 35

St George Bank Ltd v Field [2007] NSWSC 902

Sumampow v Mercator Property Consultants Pty Ltd [2005] WASCA 64

The Hancock Family Memorial Foundation Ltd v Fieldhouse (No 5) [2013] WASC 121

The Hancock Family Memorial Foundation Ltd v Lowe [2015] WASCA 38; (2015) 294 FLR 274

Thompson v Palmer (1933) 49 CLR 507

Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387

Water Authority (WA) v AIL Holdings Pty Ltd (No 2) (1993) 10 WAR 233

Waterman v Gerling Australia Insurance Co Pty Ltd [2005] NSWSC 1066; (2005) 65 NSWLR 300

Table of Contents

Table of Contents

Summary
Issues and answers

Application of Guarantees to 2010 Loan Agreements
Application of Guarantees to 2007 and 2008 Loan Agreements
Liability of the plaintiffs under the Guarantees if applicable

The Transfer Act

Context of enactment
Overview of the Transfer Act
Part 3 of the Transfer Act
Part 4 of the Transfer Act
Section 43 of the Transfer Act
Principles of statutory construction
Purpose and operation of the Transfer Act
Extrinsic material

Facts

The plaintiffs and Success
Statewest Loan Agreement and the Guarantees
Merger of Statewest and Home
2006 Loan Agreement
Legal effect of the 2006 Loan Agreement
2007 Loan Agreement
2008 Loan Agreement
Internal approval of the 2007 and 2008 Loan Agreements
Legal effect of the 2007 and 2008 Loan Agreements
Transfer of assets from Success and Home to the Bank
Legal effect of the transfer certificates
Default by Success in repayment of loans
Consideration of extension of the facilities in 2010
2010 Loan Agreements
Default on the 2010 Loan Agreements
Notice of Demand
Certification of amounts owing

These proceedings
Issue 1:  application of Guarantees to 2010 Loan Agreements

Issue and answer

Reasoning

Issue 2:  transfer without consent

Issue and answer

Reasoning

Issue 3:  conventional estoppel and the 2010 Loan Agreements

Issue and answer
Conventional estoppel - general principles
Conventional estoppel - banking cases
Conventional estoppel - assumption of fact or law
Conventional estoppel - conclusion

Common assumption

Detriment

Issue 4:  Code of Banking Practice

Issue and answer

Reasoning

Issues 5 - 7:  application of the Guarantees to the 2007 and 2008 Loan Agreements
Issue 8:  amount owing by Success to the Bank

Issue and answer

Reasoning

Issue 9:  demand

Issue and answer

Reasoning

Issue 10:  liability without demand

Issue and answer

Reasoning

Issue 11:  set off

Issue and answer

Reasoning

Interest and judgment sum

Date at which principal liability is to be ascertained
Pre-judgment interest
Further submissions

Conclusion and orders

MITCHELL J: 

Summary

1. In April 2006, Success Assets Pty Ltd, a company controlled by Ms Tina Bazzo, borrowed money from Statewest Credit Society Ltd.  The money was borrowed to assist with the purchase of land in Jandakot, on the security of a mortgage over that land.  On 24 April 2006, Ms Bazzo and three other companies she controlled (George 218 Pty Ltd, Prada Pty Ltd and Gucce Holdings Pty Ltd) executed deeds of guarantee and indemnity in favour of Statewest (Guarantees).  'Moneys Secured' under the Guarantees included all money payable to Statewest by Success, and all future loans from Statewest to Success.

2. Statewest's loan to Success was repaid on 27 December 2006, using money Success borrowed from Home Building Society Ltd (Home).  Success was not indebted to Statewest after this date.  However, the Guarantees continued to operate to confer rights on Statewest in relation to future lending to Success.

3. On 21 September 2008, Statewest's rights under the Guarantees were transferred to Bank of Queensland Ltd.  The transfer occurred under the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) (Transfer Act). The Guarantees continued to operate according to their tenor as if references to Statewest were to the Bank. The rights of Home under then existing loan agreements between Home, Success and the plaintiffs were also transferred to the Bank at the same time.

4. In July 2010, the Bank agreed to lend Success money to pay out its existing facilities, which were secured by mortgages over four properties.  Money lent by the Bank to Success in 2010 was 'Moneys Secured' by the Guarantees as modified under the Transfer Act.  The plaintiffs signed a Deed of Consent in which they agreed that the Guarantees continued to be security to the Bank for repayment of the July 2010 loans.  The Deed of Consent manifested the common understanding of the Bank and the plaintiffs that the Guarantees secured the 2010 loans.  The Bank relied on that understanding in granting the 2010 loans.

5. Success defaulted on the repayment of the 2010 loans.  In July 2012, the Bank appointed a receiver of land mortgaged by Success to the Bank.  The proceeds of the sale of the mortgaged properties left Success owing a shortfall of $2,274,515.87 to the Bank as at 6 November 2013.  On that date, the Bank demanded that George 218, Prada and Ms Bazzo pay the shortfall under the Guarantees.

6. After receiving the demand, the plaintiffs commenced these proceedings.  The plaintiffs claim a declaration that the Bank is not entitled to any payment from them under the Guarantees.

7. The plaintiffs' claim is made on two bases.  First, the plaintiffs say the Guarantees did not apply to secure the Bank's 2010 loans to Success.  Secondly, the plaintiffs say they are not liable because of breaches of duties owed to them in relation to the appointment of the receiver and the sale of Success's mortgaged properties.  This second basis of the action is defensive, and the plaintiffs do not seek damages for breach of the pleaded duties.

8. The Bank responded by counterclaiming for the outstanding balance of the loans, said to be due to it by the plaintiffs under the Guarantees.

9. Clause 4 and cl 5 of the Guarantees, as modified under s 22 of the Transfer Act, operate to secure money owed by Success to the Bank under the 2010 loan agreements. Even if the Guarantees did not secure that money, a conventional estoppel would preclude the plaintiffs from denying that state of facts. Following the Bank's Notice of Demand, George 218, Prada and Ms Bazzo became liable to pay the amount owing by Success to the Bank under cl 4 of the Guarantees. All of the plaintiffs are liable to pay Success's outstanding debt to the Bank under cl 5 of the Guarantees.

10. The Guarantees require the plaintiffs to pay the amount they owe the Bank without set off.  The claimed breaches of duty in relation to the appointment of the receiver and sale of the mortgaged properties do not affect the plaintiffs' obligation to make that payment.

11. Given these conclusions, the plaintiffs' claim for declaratory relief must be dismissed and judgment should be entered for the Bank on its counterclaim. 

12. However, Success's liability to the Bank had grown to $3,211,311.44 as at 26 August 2015.  There are issues, which the parties' submissions have not addressed, as to the amount in which judgment should be entered for the Bank.  These issues concern the date at which the principal amount owed should be ascertained and the award of pre‑judgment interest on that amount.  Before making final orders I will give the parties an opportunity to address the amount which should be the subject of judgment in light of these reasons.

13. My reasons for reaching these conclusions follow.

Issues and answers

1. During the course of the trial, the parties, acting with the assistance of the court, agreed upon the issues arising for my determination.  The issues and the manner in which I have answered the questions posed are set out below.  It has not been necessary to resolve some of the issues, given the manner in which others have been determined.  The bracketed references are to pages of the trial bundle, which is exhibit 1.

Application of Guarantees to 2010 Loan Agreements

1.Is the debt due by Success to the Bank under the 2010 Loan Agreements (TB 775 ‑ 782, 807 ‑ 810, 824 ‑ 833) 'Moneys Secured' within the meaning of the Guarantees, on the terms of the Guarantees:

(a)as varied by s 22(1) and (2) of the Transfer Act and the certificate of transfer (TB 519 ‑ 523); and/or

(b)as varied by the Deed of Consent (TB 811 ‑ 812)?

Answer:  Yes.

2.Did the transfer and variation of the Guarantees under the Transfer Act without the plaintiffs' consent have the effect of discharging the plaintiffs' liability under the Guarantees?

Answer:  No.

3.Does a common law estoppel by convention preclude the plaintiffs from denying that moneys owing under the 2010 Loan Agreements constitute 'Moneys Secured' by the Guarantees?

Answer:  Yes (on the assumption that moneys owing under the 2010 Loan Agreements were not actually 'Moneys Secured' by the Guarantees).

4.Is any liability of the plaintiffs to make payments under the Guarantees discharged by reason of a breach by the Bank of cl 6.1 of the Bank's Business Lending Supplementary Terms and Conditions (TB 698) (because the Guarantees were not limited to a specified amount or endorsed to indicate that the Code was applicable)?

Answer:  No.

Application of Guarantees to 2007 and 2008 Loan Agreements

5.Was it a term or condition of the 2007 Loan Agreement and the 2008 Loan Agreement between the Bank, Success and the Plaintiffs that the obligations of Success under those agreements were to be secured by the Guarantees?

Answer:  Yes.

6.Does a common law estoppel by convention preclude the plaintiffs from denying, as at 20 September 2008, that money owing to Home under the 2007 Loan Agreement and 2008 Loan Agreement constituted 'Moneys Secured' by the Guarantees?

Answer:  Unnecessary to answer.

7.If 'yes' to 6, was the benefit of the estoppel an asset of Home which was transferred to the Bank on 21 September 2008 by operation of s 20(1) and (2) of the Transfer Act and the certificate of transfer (TB 524 ‑ 526)? 

Answer:  Unnecessary to answer.

Liability of the plaintiffs under the Guarantees if applicable

8.What amount remains owing by Success to the Bank under the relevant loan agreements?

Answer:  $2,274,515.87 as at 6 November 2013 and $3,211,311.44 as at 26 August 2015.

9.Has the Bank made a valid demand for payment, giving rise to obligations of George 218, Prada and Ms Bazzo to make payment under cl 4 of the Guarantees?

Answer:  Yes.

10.Does any liability of the plaintiffs to make payment under cl 5(a) of the Guarantees depend on the making of a demand for payment by the Bank?

Answer:  No.

11.Does cl 17 of the Guarantees operate to preclude the plaintiffs from relying on breaches of the duties asserted at par 75 ‑ 76B of the Statement of Claim (if established) as denying the Bank entitlement to payment under the Guarantees?

Answer:  Yes.

The Transfer Act

1. The Transfer Act plays an important role in the resolution of this litigation.  I will outline its provisions before turning to find the facts.

Context of enactment

1. The Transfer Act forms part of a legislative package providing for transfer of regulatory responsibility for building societies and other financial institutions from the States and Territories to the Commonwealth. 

2. The principal Act giving effect to that policy was the Financial Sector Reform (Amendments and Transitional Provisions) Act (No 1) 1999 (Cth) (Amendment Act). That Act amended the Corporations Law to provide for the registration of building societies and other financial institutions as companies.  The amendments provided for the Australian Securities and Investments Commission to regulate those financial institutions. 

3. The Australian Prudential Regulation Authority (APRA) was also given regulatory authority under the Banking Act 1959 (Cth) in relation to prudential matters concerning all 'authorised deposit‑taking institutions' (ADIs), which included building societies and other financial institutions. Before the enactment of this legislation, these bodies were regulated by State legislation such as the Building Societies Act 1976 (WA) and the Credit Unions Act 1979 (WA).

4. Much of this reform had been proposed by the Financial System Inquiry Final Report, published in March 1997.  That report was referred to in the explanatory memoranda to the Bills for the Transfer Act and Amendment Act.

5. The place of the Transfer Act in this scheme was explained by the Minister in the following terms:[1]

   In transferring responsibility from the states and territories to the Commonwealth, the Commonwealth was aware that there were some parts of state and territory laws which were not allowed for under the Commonwealth regime.

   The state and territory regulated entities such as building societies, credit unions and friendly societies along with the Commonwealth, were keen to ensure that these groups were not disadvantaged by the transfer.  In fact, the Commonwealth's view was that some of these provisions were very useful prudential regulation tools.

   Transfers of business was one such power.  Under the state and territory legislation, building societies, credit unions and friendly societies were able to transfer their business amongst themselves with the approval of the regulator.  The Commonwealth is keen to provide a similar mechanism as it will provide an efficient and effective prudential tool for protecting depositors or policy owner moneys where their institution is in severe financial hardship.  It is also good to facilitate change in the industry.

   This bill contains that proposed mechanism.  As a result, the Commonwealth has carried over this useful prudential tool and extended it to all authorised deposit taking institutions and also all life insurance companies.

   [1] Commonwealth, Parliamentary Debates, House of Representatives, 11 March 1999, 3824 (Mr JB Hockey, Minister for Financial Services and Regulation).

6. The purpose of the provisions was explained in similar terms in the explanatory memorandum for the Bill:

   These provisions provide an effective prudential regulation tool to facilitate a quick and efficient transfer of business in the case of financial distress, with the aim of preventing further losses, and maintaining investor confidence in the financial services industry.

Overview of the Transfer Act

1. The long title of the Transfer Act describes its purpose as follows:

   An Act to provide for transfers of business between some kinds of financial institutions, and to make provision in relation to internal restructures within some groups of financial institutions.

1. Section 8 provides an overview of the Transfer Act:

   (1)This Act provides for 2 kinds of transfers of business of regulated bodies or bodies corporate related to regulated bodies:

   (a) voluntary transfers (these are transfers under Part 3); and

   (b) compulsory transfers (these are transfers under Part 4).

   Either kind of transfer may be a partial transfer or a total transfer.

   (2) A transfer of business of a regulated body, or of a body corporate related to a regulated body, is a partial transfer if it relates to some, but not all, of the transferring body's business (including any business that is not regulated business).

   (3) A transfer of business of a regulated body, or of a body corporate related to a regulated body, is a total transfer if it relates to all of the transferring body's business (including any business that is not regulated business).

2. The reference to a 'regulated body' is relevantly to an ADI.  The reference to a 'regulated business' is relevantly to the body's banking business (within the meaning of the Banking Act).  The reference to the 'business' of a body includes the assets and liabilities of the body.[2]

   [2] Section 4 of the Transfer Act (definitions of 'ADI', 'business', 'regulated body' and 'regulated business').

3. The terms 'asset' and 'liability' are very broadly defined.  An asset is defined to mean 'property, or a right, of any kind'.  Various interests, such as 'any chose in action', are expressly included.  'Liability' is defined to include:[3]

   a duty or obligation of any kind (whether arising under an instrument or otherwise, and whether actual, contingent or prospective).

   [3] Section 4 of the Transfer Act (definitions of 'asset' and  'liability').

4. Section 8(4) of the Act provides:

   For a voluntary transfer of business to take effect, APRA must:

   (a) receive an application for the transfer from the regulated bodies concerned (the transferring body and the receiving body); and

   (b) approve the application in writing (the voluntary transfer approval); and

   (c) issue a certificate (the certificate of transfer) stating that the transfer is to take effect.

   The transfer of business takes effect when the certificate of transfer comes into force.

5. The compulsory transfer of a business is effected by APRA making a determination and issuing a transfer certificate.  The transfer takes effect when the certificate comes into force.  The provisions of pt 4 of the Transfer Act dealing with the effect of a certificate generally reflect those of pt 3 relating to voluntary transfers.

Part 3 of the Transfer Act

1. Section 9 provides an outline of pt 3 of the Transfer Act:

   (1) For a voluntary transfer of business to take effect, APRA must:

   (a) receive an application for the transfer from the regulated bodies concerned (the transferring body and the receiving body) (see section 10); and

   (b) approve the application in writing (the voluntary transfer approval) (see section 11); and

   (c) issue a certificate (the certificate of transfer) stating that the transfer is to take effect (see section 18).

   (2) APRA must make the voluntary transfer approval if specified criteria are met (see section 11).

   (3) The voluntary transfer approval may impose conditions to be complied with by the transferring body or the receiving body either before or after the certificate of transfer is issued (see section 16).

   (4) APRA may only issue the certificate of transfer if specified criteria are met.  The certificate must specify when it comes into force (see section 18).

   (5) The transfer of business takes effect when the certificate of transfer comes into force (see section 22).

2. Section 10 of the Act permits two ADIs to apply in writing to APRA for approval of the transfer of business from one ADI to the other.

3. If APRA considers the following criteria, specified in s 11 of the Transfer Act, to be satisfied, it must approve the transfer of business.  The application must have been made in accordance with s 10 and have been adopted by the transferring body and receiving body.  Legislation to facilitate the transfer must have been enacted in the relevant States and Territories.[4]  The Minister must have consented to the transfer or indicated that his consent is not required.  It is also necessary that APRA considers that:

   the transfer should be approved, having regard to:

   (i) the interests of the depositors or policy owners of the transferring body when viewed as a group; and

   (ii) the interests of the depositors or policy owners of the receiving body when viewed as a group; and

   (iii) the interests of the financial sector as a whole; and

   (iv) any other matters that APRA considers relevant[.]

   [4] In Western Australia the relevant legislation is the Acts Amendment (Financial Reform) Act 1999 (WA).

4. Section 18 provides for APRA to issue a certificate of transfer when it has made a voluntary transfer approval and certain other conditions are satisfied.  In the case of a partial transfer, APRA must be provided with a statement listing the detail of the assets to be transferred which has been agreed between the bodies, under s 19 of the Act.

5. Section 20 of the Transfer Act provides:

   (1) The transferring body or the receiving body, or both of those bodies, may provide APRA with a written statement specifying, or specifying a mechanism for determining, things that are to happen, or that are taken to be the case, in relation to assets and liabilities that are to be transferred, or in relation to the transfer of business that is to be effected.

   Note:  If the transfer is a partial transfer, the statement may be included with the statement of detail under section 19.

   (2) APRA may, in writing, approve the statement before issuing the certificate of transfer if APRA is satisfied that:

   (a) the statement has been agreed to by the transferring body and the receiving body; and

   (b) the matters specified in the statement are appropriate.

6. Section 22 of the Transfer Act provides for the time and effect of a voluntary transfer. Section 22(1) and s 22(2) provide:

   (1) When the certificate of transfer comes into force, the receiving body becomes the successor in law of the transferring body, to the extent of the transfer.  In particular:

   (a) if the transfer is a total transfer - all the assets and liabilities of the transferring body, wherever those assets and liabilities are located, become (respectively) assets and liabilities of the receiving body without any transfer, conveyance or assignment; and

   (b) if the transfer is a partial transfer - all the assets and liabilities of the transferring body that are included in the list of assets and liabilities specified in the statement of detail, wherever those assets and liabilities are located, become (respectively) assets and liabilities of the receiving body without any transfer conveyance or assignment; and

   (c) to the extent of the transfer, the duties, obligations, immunities, rights and privileges applying to the transferring body apply to the receiving body.

   (2) If there is an approved section 20 statement in relation to the transfer, then:

   (a) if the statement specifies that particular things are to happen or are taken to be the case - those things are, by force of this section, taken to happen, or to be the case, in accordance with the statement; and

   (b) if the statement specifies a mechanism for determining things that are to happen or are taken to be the case - things determined in accordance with that mechanism are, by force of this section, taken to happen, or to be the case, as determined in accordance with that mechanism.

7. Section 22(3) of the Transfer Act provides for the substitution of the receiving body in pending proceedings, and for the admission of evidence against the receiving body, where there is a total transfer. Section 22(5) of the Act provides:

   Subject to subsection (2), if the transfer is a total transfer, on and after the day when the certificate comes into force, each translated instrument continues to have effect, according to its tenor, as if a reference in the instrument to the transferring body were a reference to the receiving body.  For this purpose:

   translated instrument means an instrument (including an Act or other legislative instrument) subsisting immediately before the day when the certificate comes into force:

   (a) to which the transferring body is a party; or

   (b) that was given to, by or in favour of, the transferring body; or

   (c) that refers to the transferring body; or

   (d) under which money is, or may become, payable, or other property is, or may become, liable to be transferred, to or by the transferring body.

   Note:  An alternative way of dealing with references in instruments (which is available for total or partial transfers) is to deal with the matter in an approved section 20 statement (see subsection (2)).

Part 4 of the Transfer Act

1. Part 4 of the Transfer Act deals with the compulsory transfer of an ADI's business.  As no compulsory transfer is involved in the present case, it is unnecessary to consider pt 4 in detail.  However, it is relevant to note that the power to require a compulsory transfer arises only in the circumstances specified in s 25(1)(a), which generally involve a transferring body in financial distress.  These include where the transferring body is unable to meet its obligations, or where an investigator or administrator has been appointed.  In deciding whether to compel a transfer, APRA is required by s 25(1)(b) ‑ (d) and s 25(2) to consider the interests of the depositors of the transferring and receiving bodies (viewed as groups) and the interests of the financial sector as a whole.

2. The culmination of the compulsory transfer process provided for by pt 4 of the Transfer Act is the issue of a certificate of transfer by APRA. Section 35 of the Transfer Act makes provision for the timing and effect of the compulsory transfer in terms materially the same as s 22 of the Transfer Act.

Section 43 of the Transfer Act

1. Section 43 of the Transfer Act provides that, subject to presently immaterial exceptions, the Transfer Act 'has effect in spite of anything in any law of the Commonwealth or of a State or Territory, or in any contract, deed, undertaking, agreement or other instrument'. Section 43(2)(c) of the Act provides that, subject to presently immaterial exceptions, nothing done by or under the Transfer Act 'releases any surety, wholly or partly, from all or any of the surety's obligations'.

Principles of statutory construction

1. As I noted in Ethnic Interpreters and Translators Pty Ltd v Sabri‑Matanagh,[5] the proper construction of the Act is 'reached by the application of rules of interpretation accepted by all arms of government in the system of representative democracy'.[6]

   [5] Ethnic Interpreters and Translators Pty Ltd v Sabri-Matanagh [2015] WASCA 186 [63] - [65].

   [6] Zheng v Cai [2009] HCA 52; (2009) 239 CLR 446 [28].

2. Those rules require primary attention to be directed to the text of the relevant provisions.[7]  There must be regard to the language of the statute viewed as a whole, considered in its context.[8]  An important part of that context will be the purpose of the legislation, ascertained from what the legislation says (rather than any assumption about the desired or desirable reach or operation of the relevant provisions).[9]  Once the purpose of the legislation is established, a construction that would promote that purpose shall be preferred to a construction that would not do so.[10]

Purpose and operation of the Transfer Act

[7] Alcan (NT) Alumina Pty Ltd v Commissioner of Territory Revenue [2009] HCA 41; (2009) 239 CLR 27 [47]; Federal Commissioner of Taxation v Consolidated Media Holdings Ltd [2012] HCA 55; (2012) 250 CLR 503 [39].

[8] Project Blue Sky Inc v Australian Broadcasting Authority [1998] HCA 28; (1998) 194 CLR 355 [69]; Plaintiff S4/2014 v Minister for Immigration [2014] HCA 34; (2014) 253 CLR 219 [42].

[9] Certain Lloyd's Underwriters v Cross [2012] HCA 56; (2012) 248 CLR 378 [26]; Minister for Employment and Workplace Relations v Gribbles Radiology Pty Ltd [2005] HCA 9; (2005) 222 CLR 194 [21].

[10] Section 15AA of the Acts Interpretation Act 1901 (Cth).

1. A purpose of the Act is to facilitate the effective transfer of businesses, or parts of businesses, between regulated bodies.  This is evident from both the terms of the Transfer Act and the Parliamentary material.  What is transferred is not an asset, but a 'business'.  A 'business' includes, but is not limited to, assets and liabilities.  The terms 'asset' and 'liability' comprehend all kinds of rights and obligations, whether or not they would be assignable under the general law.

2. Under s 22(1)(a) and (b) of the Transfer Act, transferred assets and liabilities become assets and liabilities of the receiving body without any transfer, conveyance or assignment. Section 22(1)(c) of the Transfer Act provides for the duties, obligations, immunities, rights and privileges applying to the transferring body to apply to the receiving body. The clear aim of these provisions is to have the receiving body stand in the shoes of the transferring body in a way that could not be easily effected under the general law. That is, the receiving body is placed in the same position after transfer as the transferring body was in before transfer. The receiving body is the successor at law of the transferring body.

3. Contrary to the plaintiffs' submissions, the purpose of the provisions is not confined to 'provid[ing] protection to those dealing with financial institutions, while providing an efficient mechanism for institutions to transfer assets'.[11]  The Transfer Act is concerned with more than the transfer of assets.  Further, the focus of the Act is not on the protection of persons owing debts or other obligations to financial institutions.  Rather, s 11(1)(c) of the Transfer Act requires APRA to have regard to the interests of depositors, viewed as groups, and the interests of the financial sector as a whole.  The focus is on protecting the interests of depositors, not advancing the position of persons owing money to the financial institution.

   [11] Plaintiffs' Supplementary Submission on the Transfer Act par 8.

4. Voluntary transfers of business under the Transfer Act can occur in circumstances not involving financial distress of the transferring body. However, both the Minister's second reading speech and the explanatory memorandum to the Bill for the Transfer Act identify cases of financial distress as a circumstance in which the transfer provisions will operate. Cases involving financial distress are also the focus of pt 4 of the Transfer Act, in which s 35 of the Act makes the same provision for the effect of a transfer certificate as s 22 of the Act.

5. Where a receiving body accepts a transfer of the business, or part of the business, of the transferring body it may take on the liabilities of the transferring body to its depositors or some of them. Part of the consideration for doing so will commonly be the transfer of rights enjoyed by the transferring body. Such a transaction will be facilitated if the receiving body takes the full value of those rights as they are held by the transferring body. If that does not occur, then it will be more difficult to find a receiving body willing to assume the liabilities to depositors of a transferring body. If full value is not transferred, then it is likely that the consideration received by the transferring body for its assets will be reduced, to the prejudice of depositors who may remain with the transferring body. Reading down the very broad terms of s 22 and 35 of the Act would tend to defeat rather than advance the evident purpose of the Transfer Act to protect the interests of depositors. Reading down those terms would also tend to defeat the purpose, evident from the terms of the Transfer Act and captured in the explanatory memorandum to the Bill for the Transfer Act, of providing:

   an effective prudential regulation tool to facilitate a quick and efficient transfer of business in the case of financial distress, with the aim of preventing further losses, and maintaining investor confidence in the financial services industry.

6. In my view the meaning of s 22 of the Act, and the broad scope of the rights and obligations to which it applies, is clear from the terms of the Transfer Act.[12] Giving the terms used in s 22 and associated definitions their ordinary and natural meaning advances the purpose of the Transfer Act. Adopting the plaintiffs' submission of reading down the words to accommodate the interests of persons with obligations to the transferring body would not advance that purpose. There is nothing in the broader context in which the legislation was enacted or extrinsic material to warrant reading the provisions down.

Extrinsic material

[12] Commonwealth Bank of Australia v Khoury [2013] NSWSC 1787 [32].

1. In the course of counsel's submissions in this case I invited submissions on whether the Parliamentary material, the Financial System Inquiry Final Report or the preceding State and Territory legislation assisted in the construction of s 22 of the Transfer Act. Counsel provided written submissions on that issue. I found the Minister's second reading speech and the explanatory memorandum to the Bill for the Transfer Act to be helpful in explaining the context in which the Act was enacted and confirming the purpose of the legislation which I have inferred from its terms.

2. Otherwise, I did not perceive anything in the extrinsic material which assisted the construction exercise. I accept the Bank's submission that the extrinsic material does not touch upon the legal effect of transfers and mergers between financial institutions under the Transfer Act. The effect was not addressed in the Report, which contains little detail about transfers. The explanatory memorandum does not elaborate on the terms of s 22 of the Transfer Act. The terms of preceding State legislation do not add clarity, and have not been judicially considered by any case to which counsel referred. As the extrinsic material does not assist in the construction exercise, it is unnecessary to deal with the Bank's submissions as to whether it should be considered at all.

Facts

1. Having considered the operation of the Transfer Act, I turn to make the findings of fact required for my determination of the case.  There was little controversy as to the primary facts, although the legal characterisation of what had occurred was frequently in issue.  Most of the following facts are established by documents forming part of the Trial Bundle.  Where the evidence of a witness is relied upon it is specified.

The plaintiffs and Success

1. Ms Bazzo was, at all material times up to 30 June 2012, the sole director and secretary of Success (TB 1142).  At all material times she was the sole director and secretary of George 218, Prada and Gucce (TB 1146 ‑ 1147, 1152, 1154C).  At all material times Ms Bazzo was the sole shareholder of Success and Gucce (TB 1143, 1154D ‑ 1154E).  Gucce was, at all material times, the sole shareholder in George 218 and Prada (TB 1147, 1152).  Ms Bazzo therefore was the sole controller and guiding mind of George 218, Prada, Gucce and (until 30 June 2012) Success.

Statewest Loan Agreement and the Guarantees

1. On 13 April 2006, Statewest wrote to Ms Bazzo in her capacity as director of Success.  By that letter, Statewest offered a facility of $1,700,000 to assist with the purchase by Success of 87 and 89 Muriel Street, Jandakot.  Under the offer, Success was to repay the principal sum, interest and other amounts within 24 months from the initial settlement date.  Until then, Success was required to pay interest monthly in arrears on the first day of each month.  The letter proposed that Success's obligation to pay those amounts would be secured by an unlimited guarantee and indemnity given by the plaintiffs (TB 77 ‑ 80). 

1. On 24 April 2006, Ms Bazzo accepted this offer on behalf of Success (TB 82). 

2. I shall refer to the loan contract established by the letter and acceptance as the 'Statewest Loan Agreement'.

3. Also on 24 April 2006, Ms Bazzo executed deeds of guarantee and indemnity on her own behalf, and as director and secretary of the corporate plaintiffs. Ms Bazzo's signature on her own deed was witnessed as required by s 9(1)(b) of the Property Law Act 1969 (WA). Ms Bazzo executed the deeds on behalf of the corporate plaintiffs as their sole director and secretary in accordance with s 127(1) and s 127(3) of the Corporations Act 2001 (Cth). The guarantee and indemnity documents took effect as deeds. I have referred to them in these reasons as the Guarantees.

4. By cl 4 of the Guarantees, the plaintiffs guaranteed the due and punctual payment of the 'Moneys Secured' by Success to Statewest on demand.  The term 'Moneys Secured' was defined to include:

   1.all money which is or may become payable to Statewest by Success;

   2.all loans made, agreed to be made or which in the future Statewest makes to Success; and

   3.all money 'now or in the future' owing and payable to Statewest by Success.

5. Clause 5(a)(i) and cl 5(a)(ii) of the Guarantees provides that the plaintiffs must indemnify Statewest against any loss which Statewest may suffer because for any reason Success fails to pay the Moneys Secured or the Moneys Secured are not recoverable from Success.  Clause 5(c) provides that the indemnity is an additional obligation of the plaintiffs which may be enforced against each plaintiff as principal debtor separately from the guarantee in cl 4. 

6. Clause 9 provides for the plaintiffs to stop the Guarantees covering Success's future liabilities to Statewest by notice in writing.  Clause 11 provides that the Guarantees are continuing guarantees and indemnities and are not wholly or partially discharged by payment of all or part of the Moneys Secured, by any settlement of account or by any other matter or thing.

7. Clause 12 of the Guarantees provides that the plaintiffs' liability under the Guarantees is not affected by 'anything that might otherwise affect it under the law relating to sureties'.  Clause 12(f) specifies that this includes:

   a variation or extension to, or … replacement … of any credit, finance facilities or other arrangement … given to [Success] alone or with any other person, whether with or without the [plaintiffs'] consent or knowledge.

8. Clause 17 of the Guarantees relevantly provides that:

   All payments under this Guarantee must be made … free from any set-off or counter-claim.

9. On 25 May 2006, the loan amount of approximately $1,700,000 was disbursed by Statewest to Success, and used by Success to purchase 87 and 89 Muriel Street, Jandakot (TB 172 ‑ 179, 190, 194).  On the same date Success granted Statewest a mortgage over 87 and 89 Muriel Street, Jandakot (TB 180 ‑ 189).  The transfers and mortgages were registered on that day.  The money advanced was debited to account no 244000288, held by Success with Statewest (TB  194).

Merger of Statewest and Home

1. The Bank pleads that, on 28 June 2006, the Federal Court of Australia approved the merger between Home and Statewest, by which there was a merger of the businesses conducted by Statewest and Home and Statewest became a wholly owned subsidiary of Home.[13]  However, there is no evidence of the 'merger' arrangements made at this time and the pleading is not admitted.

   [13] Defence and Counterclaim par 44.

2. It is common ground that whatever happened on 28 June 2006 did not have the effect of transferring Success's liability to Statewest under the Statewest Loan Agreement, or the plaintiffs' liability to Statewest under the Guarantees, to Home.

3. In an account statement for the period ending 30 June 2006, Statewest did advise Success that a scheme of arrangement between Statewest and Home had been approved.  What was provided for by the scheme was not explained, although it was described in the heading to the note as a Statewest merger with Home (TB 194).

2006 Loan Agreement

1. On 18 December 2006, Home wrote to Ms Bazzo as director of Success (TB 195A ‑ 200).[14]    The letter offered Success a 'variation to original facility letter dated 13 April 2006'.  The principal effect of the variation was to increase the facility limit by $200,000 to $1,900,000.  Also on 18 December 2006, Ms Bazzo signed the acceptance of the facility letter for Success (TB 201 ‑ 202).  I shall refer to the loan contract effected by this letter and acceptance as the 2006 Loan Agreement.

   [14] At this time, Statewest had changed its name to Statewest Financial Services Ltd (TB 1207).

2. On 20 December 2006, Home wrote to each of the plaintiffs, attaching the letter dated 18 December 2006 (TB 203 ‑ 206).  The letters indicated that each plaintiff was being written to 'as Guarantor under a Guarantee dated 24 April 2006 given in respect of money owed to the Home' by Success.  The letter sought each plaintiff's agreement to the 'variation of the Arrangements which will be subject to your Guarantee'.

3. On 21 December 2006, Ms Bazzo signed the foot of each letter of 20 December 2006 on her own behalf and as sole director and secretary of the corporate plaintiffs, indicating the plaintiffs' agreement 'to the variation of the Arrangements' (TB 203 ‑ 206). 

4. On 27 December 2006 account no 244000358 was opened in the name of Success.  A combined account statement for account no 244000288 and account no 244000358 was printed with the details of both Home and Success (TB 208 ‑ 209).  On 27 December 2006, account no 244000288 was reduced to a nil balance by the payment of $1,710,166.04, which sum was debited to account no 244000358.  An amount of $186,268.96 was both credited and debited to account no 244000358, and $3,565.00 was debited for fees and stamp duty.

5. On 29 December 2006, Home wrote to Ms Bazzo as director of Success indicating that on 27 December 2006 'your new loan was drawn and funds were disbursed' (TB 207).  The letter invited contact 'should you have enquiries concerning the services offered by Home'.

Legal effect of the 2006 Loan Agreement

1. I digress from setting out my findings of fact to consider the legal effect of what transpired in December 2006, questions of estoppel aside.

2. The effect of the above correspondence was that a new loan agreement was entered into between Home and Success, the debt to Statewest under the Statewest Agreement was discharged by repayment and a new debt was owed by Success to Home.  This is pleaded by the plaintiffs.[15]  The Bank admits that what was involved was the entry into a loan agreement between Success and Home.[16]  The Bank does not admit that the loan provided for by the Statewest Loan Agreement was paid out.  However, that conclusion follows from the facts I have recited and the admitted fact that there was a new loan agreement between Home and Success.

   [15] Statement of Claim pars 13 - 17.

   [16] Defence and Counterclaim par 8.

3. The Guarantees were not varied.  All that the plaintiffs had done was consent to a variation of the loan arrangement, albeit by endorsing a letter which proceeds on the assumption that the Guarantees were given in respect of the money Success owed to Home.  The Guarantees did not actually secure any money owed by Success to Home.

4. However, the Guarantees were not discharged by the repayment of the Statewest loan.  The Guarantees were not limited to money owed under the Statewest Loan Agreement.  Rather, they secure all moneys which Statewest may lend to Success in the future.  Clause 11 of the Guarantees expressly provided for the Guarantees to continue after payment of all of the Moneys Secured.  After 27 December 2006, the Guarantees did not secure any existing debt owed by Success to Statewest.  However, they remained available to secure any future loans which Statewest made to Success.  The Guarantees could be brought to an end by the plaintiffs giving notice under cl 9, but this was never done. 

5. So, by the end of December 2006 the position was as follows (putting aside questions of estoppel).  The loan under the Statewest Loan Agreement was repaid in full, and Success was not indebted to Statewest.  The plaintiffs continued to guarantee repayment of money which might be lent by Statewest in the future.  The Guarantees did not operate in relation to any existing debt.  Success owed money to Home under the 2006 Loan Agreement, but (questions of estoppel aside) the Guarantees did not secure that debt.

2007 Loan Agreement

1. On 19 December 2007 Home wrote to Ms Bazzo as director of Success offering to provide a $5,256,000 facility to assist with the purchase of properties at 848 North Lake Road and 76 Muriel Court, Jandakot.  The proposed loan was repayable 18 months after the first drawdown of the facility, with provision for capitalisation of interest up to $740,000 (TB 459 ‑ 470). 

2. The letter of 19 December 2007 also provided that acceptance of the facility offer creates a contract between Home, Success and the plaintiffs (TB 460), and that Success and the plaintiffs were bound by Home's Standard Terms and Conditions (TB 461).  The letter provided that the security for the facility was to include '[j]oint and several unlimited guarantee and indemnity given by' the plaintiffs, described as '(existing)' (TB 461).  The letter incorporated a 'Borrower's Acceptance Clause' and a 'Guarantor's Acceptance'.

3. On 21 December 2007, Ms Bazzo signed the Borrower's Acceptance Clause as director of Success (TB 465). 

4. Also on 21 December 2007, Ms Bazzo signed the Guarantor's Acceptance on her own behalf and as director of the corporate plaintiffs as 'the Guarantor'.  The Guarantor's Acceptance included the following provisions (TB 466):

   By signing this document, the Guarantor:

   1.approves the Facilities on the terms set out and referred to in this Facility Offer and the Standard Terms and Conditions;

   2.acknowledges that a legally binding contract on the terms set out and referred to in this Facility Offer and the Standard terms and Conditions is created between the Borrower, the Guarantor and the Lender.

5. Home's 'Standard Terms and Conditions' included various provisions in relation to a guarantor (TB 243 ‑ 248).

6. On 21 December 2007, Ms Bazzo also signed a number of statutory declarations as director of Success and the corporate plaintiffs as to various matters concerning those companies (TB 471 ‑ 482).

7. I shall refer to the above contract between Home, Success and the plaintiffs, contained in Home's letter of 19 December 2007 and the attachments signed by Ms Bazzo on 21 December 2007, as the 2007 Loan Agreement.

8. The opening balance of account no 244000482, relating to the 2007 Loan Agreement, was $4,517,124.16 as at 1 January 2008 (TB 487).  On 2 January 2008, title to 848 North Lake Road and 76 Muriel Court Jandakot was transferred to Success for a total consideration of $4,350,000.  A mortgage in favour of Home was registered on the title of that land (TB 491 ‑ 504).

9. It is common ground that the plaintiffs did not execute any further guarantee document before Success drew down on the facility provided for by the 2007 Loan Agreement. 

2008 Loan Agreement

1. As noted above, the terms of the 2006 Loan Agreement required repayment of principal, interest and other amounts 24 months after the initial settlement of 87 and 89 Muriel Street.  That is, the loan was repayable by 24 May 2008.

2. On 7 March 2008, Home offered Success a facility of $2,170,000 for the purpose of repaying an existing loan facility, providing additional funds for interest capitalisation through to 31 May 2009 and other purposes approved by Home.  The loan expired on the earlier of 18 months after initial drawdown or 31 May 2009.  The offer would allow $305,000 in interest to capitalise to the loan account, and required repayment in full at the expiry of the loan.  It was to be secured by an unlimited guarantee and indemnity provided by the plaintiffs.  The provision of the plaintiffs' guarantee was a condition precedent to the provision of the facility.  The letter contained provisions for a contract to arise between Home, Success and the plaintiffs which reflect those of the 2007 Loan Agreement (TB 505 ‑ 516). 

3. At some point Ms Bazzo accepted the offer as director of Success (TB 511) and signed the Guarantor's Acceptance in terms quoted above on her own behalf and as director of the corporate plaintiffs (TB 512 ‑ 514).  I shall refer to the agreement, constituted by Home's letter of 7 March 2008 and the attachments signed by Ms Bazzo, as the 2008 Loan Agreement.

4. It appears that account no 244000358 was maintained with the same number (TB 767).  There was no transfer of funds into or out of that account by reference to the discharge of the loan under the 2006 Loan Agreement or the drawdown of the loan under the 2008 Loan Agreement.

5. It is common ground that the plaintiffs did not execute any further guarantee document in 2008.

Internal approval of the 2007 and 2008 Loan Agreements

1. Home's offers of facilities under the 2007 and 2008 Loan Agreements were approved by a Management Credit Committee comprising Home's Manager Commercial Credit, General Manager Risk and Managing Director (TB 427).  Although the record produced in these proceedings was a computer record which did not have the signatures of the committee members, it was common ground that this committee approved the offers.  The credit submission, prepared by Home officers for the consideration of the committee, indicated at various points that the proposed facilities would be secured by the Guarantees (TB 424, 426, 436).  The bank's risk was assessed by reference to the assets of Success and the plaintiffs as a group (TB 433 ‑ 434, 437, 446).

2. Based on the above evidence, I am satisfied that the officers of Home who approved the offer of facilities under the 2007 and 2008 Loan Agreements understood that the Guarantees would secure repayment of the loans, and proceeded on that assumption when granting the approval. 

Legal effect of the 2007 and 2008 Loan Agreements

1. I again digress from this recitation of the facts to consider the legal effect of the 2007 and 2008 Loan Agreements, putting aside issues of estoppel.

2. The 2007 Loan Agreement created a new contract between Home, Success and the plaintiffs by which Home would advance Success a new loan of $5,256,000 on the agreed terms. 

3. In 2008, the debt provided for by the 2006 Home Loan was discharged by repayment, and a new loan was advanced to Success for an amount of $2,170,000.

4. The debts created by the 2007 and 2008 Loan Agreements were not 'Moneys Secured' within the meaning of the Guarantees as they were executed, as the debts were not due to Statewest.

5. However, it was an express term of both the 2007 and 2008 Loan Agreements that the facilities provided for would be secured by an existing joint and several unlimited guarantee and indemnity given by the plaintiffs.  The reference to the existing guarantee and indemnity could only be to the Guarantees, as the plaintiffs had given no other guarantee and indemnity.  Extrinsic evidence is admissible to identify the subject matter of a contract.[17]  Considered against the terms of the Guarantees, I consider that a reasonable business person would have understood the term as containing the plaintiffs' agreement to guarantee the repayment of the loans provided for by the 2007 and 2008 Loan Agreements on the terms contained in the Guarantees.[18] 

   [17] County Securities Pty Ltd v Challenger Group Holdings Pty Ltd [2008] NSWCA 193 [14] ‑ [16]; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337, 349 ‑ 350; Rankin v Scott Fell & Co (1904) 2 CLR 164, 172.

   [18] As to the general approach  to contractual construction, I adopt what I said in Laing O'Rourke Australia Construction Pty Ltd v Samsung C & T Corporation [2015] WASC 237 [157] ‑ [159]. The principles set out in the cases to which I referred were recently reaffirmed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37 [46] ‑ [52].

6. Of course, ambiguous provisions for guarantee and indemnity in the 2007 and 2008 Home Loan Agreements are to be construed in favour of the surety.[19]  However, in the present case, the effect of the provision is clear.

   [19] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 561; Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 [17] ‑ [23]; Bofinger v Kingsway Group Ltd [2009] HCA 44; (2009) 239 CLR 269 [53].

7. That is, the effect of the term was to create new obligations of the plaintiffs to guarantee and indemnify Home in relation to the repayment of the loans under the 2007 and 2008 Loan Agreements on terms contained in the Guarantees.  This involved applying the terms of the Guarantees as if references to Statewest were to Home and references to the Money Secured comprehended the debts created by the 2007 and 2008 Loan Agreements.

8. The consideration for the plaintiffs' new contractual promise was the obligation of Home to loan money to Success on the terms of the 2007 and 2008 Loan Agreements.

Transfer of assets from Success and Home to the Bank

1. On 21 September 2008, certificates of transfer under s 18(1) of the Transfer Act came into force in respect of the partial transfer of business from Statewest and Home to the Bank (TB 519 ‑ 526).  Each certificate contained a statement of detail indicating that it was agreed that all assets and liabilities (as those terms are defined in the Transfer Act) of Statewest and Home as at 20 September 2008 would be transferred to the Bank (subject to presently immaterial exceptions).  The statement also included a provision that (again, subject to presently immaterial exceptions):

   Each translated instrument, as that term is defined under section 22(5) of the [Transfer] Act, continues to have effect, according to its tenor, as if a reference in the instrument to [Statewest/Home] were a reference to the Bank.

2. From 21 September 2008 loan accounts 244000358 (relating to the 2008 Loan Agreement) and 244000482 (relating to the 2007 Loan Agreement) were operated by the Bank (TB 527, 544).

Legal effect of the transfer certificates

1. The effect of these transfer certificates, provided for by s 22 of the Transfer Act, was that relevant assets and liabilities of Statewest and Home became assets and liabilities of the Bank, by force of s 22(1)(b) of the Act.

2. Home's assets included the debt owed by Success to Home under the 2007 and 2008 Loan Agreements, and the rights conferred by the term that the Guarantees secured the facilities provided under those agreements.  Home's assets also included the mortgage over 848 North Lake Road and 76 Muriel Court.  The assets of Statewest included its rights under the Guarantees and the mortgages over 87 and 89 Muriel Street. 

3. The 2007 and 2008 Loan Agreements and the Guarantees were 'translated instruments' with the meaning of s 22(5) of the Transfer Act. By force of s 22(2) of the Transfer Act, those instruments have effect according to their tenor as if references to Home and Statewest were to the Bank.

4. That is, from 21 September 2008 the Bank was owed the debts under the 2007 and 2008 Loan Agreements.  The Bank held the mortgages over land at 848 North Lake Road and 76, 87 and 89 Muriel Street.  Also from that date, the Bank had the benefit of the Guarantees, which had effect as if the references in the Guarantees to money payable by Success to Statewest etc were references to money payable by Success to the Bank.

Default by Success in repayment of loans

1. The loan under the 2007 Loan Agreement was repayable on 1 July 2009, 18 months after the first draw down of the loan.  The loan under the 2008 Loan Agreement was repayable at latest by 31 May 2009.  It is common ground that the debts arising under those agreements were not paid by the due dates.

2. It is common ground that, on 28 August 2009, the Bank issued a notice to pay to Success.[20]

   [20] Statement of Claim par 39; Defence and Counterclaim par 21.

1. The plaintiffs allege that, by letter of variation dated 12 November 2009, the Bank and Success varied the 2007 and 2008 Loan Agreements, extending the date for repayment to 30 March 2010.[21]  The Bank does not admit this allegation.[22]

   [21] Statement of Claim par 40.

   [22] Defence and Counterclaim par 20.

2. There is evidence that, on 12 November 2009, the Bank wrote to Success and the plaintiffs indicating the approval of an extension to the term of the 2007 and 2008 Loan Agreements (TB 640 ‑ 649).  However, this proposed variation was to take effect on the return of the letter signed by Success and the plaintiffs and various other conditions precedent including clearing of repayment arrears (TB 642).  There is no evidence of these events having occurred. 

3. Also on 12 November 2009, the Bank's solicitors wrote to Success referring to default notices and indicating that the Bank was prepared to stay enforcement proceedings on condition that there be monthly payments of interest and reductions of arrears of $50,000 (TB 649A ‑ 649B).

4. Given the above, I conclude that there was no variation to the 2007 Home Loan Agreement or the 2008 Home Loan Agreement in 2009.  However, I infer that the Bank did not take enforcement proceedings at this time because payments were made by Success as indicated by the letter prepared by the Bank's solicitors. 

Consideration of extension of the facilities in 2010

1. The Bank adduced the evidence of Nicholas Marmont and Chris Sara as to the process adopted by the Bank in considering whether to offer facilities to Success in 2010.  Most of their statements, which were adopted as their evidence‑in‑chief, were not subject to significant cross‑examination.  None of their evidence was contradicted by other witnesses.  Some parts of Mr Sara's statement were subject to objection, but it has not proved necessary for me to have regard to any of the portions of that statement to which objection is taken in order to resolve the disputes in these proceedings.  I make the following findings based on their evidence other than those parts of Mr Sara's statement to which objection was taken.

2. At all material times, the Bank had an internal process for the approval of credit facilities.  This involved a 'relationship manager' (in this case Mr Sara) preparing a commercial lending submission for consideration by a credit manager (in this case Mr Marmont).  The relationship manager has contact with the Bank's customer, with whom the credit manager does not interact.  The relationship manager is responsible for gathering information for inclusion in the commercial lending submission.  Depending on the amount proposed, either the credit manager or a committee of managers will make a decision to approve a proposed transaction, approve the proposal subject to conditions or reject the proposal.  These decisions are made on the basis of material contained in the commercial lending submission.  The decision of the credit manager or committee is communicated to the relationship manager, who is responsible for implementing the credit decision.

3. On or about 6 May 2010, Mr Sara prepared, or caused to be prepared, a commercial lending submission for a proposal to extend existing facilities for Success for a one year term to allow sale or refinance of the Jandakot properties (TB 749 ‑ 758).  That submission noted the assets of Ms Bazzo and Gucce (the latter is described as the main operating entity of the 'Bazzo group'), as well as Success.  The group's assets were assessed as exceeding the value of the proposed loan.

4. The commercial lending submission was accompanied by a 'securities schedule' which included as security an existing unlimited guarantee and indemnity by the plaintiffs (TB 763 ‑ 764).

5. At the time of recommending approval of the commercial lending submission, Mr Marmont was not aware of any challenge by the plaintiffs to the existence of the guarantees.  If he had been aware of such a suggestion he would have declined to support the credit submission because the security position would be unacceptable to the Bank.

6. In preparing the commercial lending submission of 6 May 2010, Mr Sara spoke to Ms Bazzo, requesting financial information about Success and the plaintiffs.  Ms Bazzo cooperated with those requests.  Mr Sara cannot recall whether he ever saw the Guarantees prior to preparing the 2010 submission, and did not know where they were kept.  He was aware that the Bank's computer records identified that the facilities existing in 2009 were supported by existing guarantees given by the plaintiffs.  In checking the Bank's records for the Guarantees, Mr Sara relied on the bank's electronic record rather than sighting the Guarantees themselves.

7. Mr Sara obtained information about the plaintiffs and conducted credit checks of the plaintiffs because he understood there to be existing guarantees held by the Bank from the plaintiffs.  All of Mr Sara's discussions with Ms Bazzo about guarantees proceeded on the basis that the Guarantees were the only guarantees in place, the only guarantees required and the guarantees on which the Bank relied in relation to the facilities granted by the Bank.

8. Because the amount of the facility exceeded Mr Marmont's authority, he wrote a note supporting the transaction which required the approval of the Bank's executive credit committee.

2010 Loan Agreements

1. On 27 May 2010 the Bank sent letters to Success offering facilities of $5,144,082 and $2,011,545 to Success (TB 775 ‑ 790).  The stated purpose of the loans was to 'assist with extension of facilities for [Success] for a term of one year to allow sale or refinance'.  The proposal required the payment of interest and a monthly amount in reduction of arrears.  The term of each proposed loan was one year.  In each case the security to be granted as a condition precedent to the loan was a guarantee and indemnity to be provided by the plaintiffs.

2. On or about 1 June 2010, Ms Bazzo purported to sign her acceptance of the loan offers as director of Success (TB 779, 810).  However, she had made a hand-written correction to the amount of the final payment due under the loan agreements (TB 776, 784).  The return of the letters took effect as a counter‑offer to the Bank's offer to provide facilities.

3. On 3 June 2010, Ms Bazzo executed, on her own behalf and on behalf of the corporate plaintiffs as 'the Guarantor', a Deed of Consent in the following terms (TB 811 ‑ 812):

   Background

   A.Pursuant to the Security Documents, the Guarantor guaranteed to the Bank the repayment by the Customer of the Existing Facility, and may have provided a mortgage or other security for the repayment of the Existing Facility.

   B.The Guarantor has requested that the Bank grant to the Customer the Additional or Varied Facility.

   C.The Bank has agreed to do so on the condition that the Guarantor signs this deed.

   Agreement

   1.Definitions

   'Additional or Varied Facility' means

   Business Term Loan  $5,144,082.00

   Business Term Loan  $2.011,545.00

   'Customer' means

   Success Asset Pty Ltd ACN 116 322 091 as trustee for Success Trust of 48 Wickham Street East Perth, WA 6004

   'Existing Facility' means

   Nil

   'Security Documents' means

   Unlimited Guarantee by you.

   2.Consent to Additional or Varied Facility

   The Guarantor consents to the Additional or Varied Facility between the Bank and the Customer.

   3.Continuing Securities

   The Guarantor agrees that the Security Documents continue to be security to the Bank for repayment of the Existing Facility and the Additional or Varied Facility.

   (original emphasis)

4. Ms Bazzo also signed, on behalf of all plaintiffs, an acknowledgement which included an acknowledgement that they had received and read a memorandum.  The memorandum read in part:

   The document which you have been asked to sign is a deed of consent to a variation of the banking facilities which you have previously guaranteed.  You may also have provided a mortgage or other security (a 'Security') in support of the guarantee.

   The effect of the guarantee is that you agreed to pay Bank of Queensland Limited ACN 009 656 740 ('the Bank') all moneys owing to it (including interest and any costs or charges incurred by the Bank) by the person named in the guarantee as the 'Principal Debtor' if the Principal Debtor fails to pay those moneys to the Bank.

   The effect of the Security is that if the Principal Debtor fails to repay the moneys owing by it to the Bank then the Bank, may have access to your property to satisfy the debt.

   The guarantee and your obligation to repay in relation to existing debts of the Principal Debtor will continue until released or discharged by the Bank and you receive notification of that release or discharge.

   The effect of the guarantee is that if the Principal Debtor fails to pay the moneys owing by it to the Bank then the Bank may sue you and obtain judgement against you for the amount of those moneys.  The Bank may satisfy that judgement by taking proceedings against you and against your property.

   …

   The effect of the deed of consent which you are being asked to sign is to continue your obligation as guarantor and under the Security in relation to the additional facilities being offered to the Principal Debtor.  The financial circumstances of the Principal Debtor may have changed since you originally gave the guarantee and Security.  You should make your own enquiries to satisfy yourself as to the Principal Debtor's capacity to repay the additional facilities.  You should read the deed of consent carefully and if you have any queries in relation to the deed of consent or anything in this memorandum, or if you are not signing the deed of consent freely and voluntarily and without coercion from any other person, then you should seek advice immediately from an independent solicitor.

5. Had Ms Bazzo not signed the Deed of Consent then Mr Sara would not have recorded the extension of the facilities because Success would not have met the terms of the Bank's approval of the grant of those facilities.

6. In July 2010, emails between officers of the Bank noted an error in the repayment schedules.  New letters of offer were issued by the Bank on 20 and 24 July 2010, and Ms Bazzo signed acceptances of those offers on behalf of Success.  The correction to the repayment schedules reflects Ms Bazzo's handwritten amendments to the Bank's letters of 27 May 2010.  References to a fixed and floating charge to be provided by Success, and form fields for additional guarantors, were also deleted.  The reference to the plaintiffs as guarantors remained.

7. I shall refer to the loan contracts established by the Bank's letters of 20 and 24 July 2010 and Success's acceptances as the 2010 Loan Agreements.

8. On 12 August 2010, $5,113,324.87 was credited to Success's account no 244000482 operated by the Bank, reducing its balance to zero (TB 773, 835).  $5,113,024.87 was debited to a new account held by Success with the Bank, no 21488391 (TB 838, 873 ‑ 889).

9. Also on 12 August 2010, the sum of $1,999,045.09 was credited to Success's account no 244000358 operated by the Bank, reducing the balance of the loan under the 2008 Loan Agreement to zero (TB 769).  The same amount was debited to a new account held by Success with the Bank, no 21488348 (TB 856). 

10. It is common ground that the debts due by Success under the 2007 Loan Agreement (TB 459 ‑ 470) and the 2008 Loan Agreement (TB 505 ‑ 516) were discharged by repayment on 12 August 2010.

Default on the 2010 Loan Agreements

1. It is common ground that Success did not repay principal and interest as required by the 2010 Loan Agreements.  On 8 August 2011, the Bank's solicitors issued Success with a notice requiring payment of the total arrears of $6,883,364.40 within 30 days (TB 890 ‑ 892).[23]  A further notice to pay what were then combined arrears of $6,757,326.88 was issued on 13 December 2011 (TB 895 ‑ 897), and served on Success by letter dated 9 January 2012 (TB 893 ‑ 894). 

   [23] Under s 106 of the Transfer of Land Act 1893 (WA).

2. It is common ground that, on 20 July 2012, the Bank appointed Jeffrey Herbert as receiver of properties at 848 North Lake Road and 78, 87 and 89 Muriel Court, by Deed of Appointment dated July 2012.[24]

   [24] Statement of Claim pars 49 - 49A; Defence and Counterclaim pars 24 - 24A; TB 947 - 956.

3. It is also common ground that, between 20 July 2012 and 29 October 2013, the receiver sold 848 North Lake Road and 78, 87 and 89 Muriel Court for an amount less than the amount owing by Success under the 2010 Loan Agreements.[25]

   [25] Statement of Claim par 72; Defence and Counterclaim par 39.

4. On 26 March 2013, Ms Bazzo wrote to the receiver in her own capacity and on behalf of Gucce.  She referred to the receiver's appointment as receiver of the land at 848 North Lake Road and 78, 87 and 89 Muriel Court (referred to in the letter as the Properties).  Ms Bazzo said (TB 1044A ‑ 1044B):

   The guarantors of the facilities of [the Bank] (Guarantors) are alarmed at your conduct since your appointment as receiver and manager of the Properties over 8 months ago.

5. After making various complaints, Ms Bazzo concluded:

   The Guarantors hereby put you on notice that they will not be liable for any loss or damage that your actions may cause [Success] or [the Bank] and will hold you liable for loss caused by your conduct, ultimately, the selling below market value in what is now obviously an improving market.

6. I infer from the terms of the Deed of Consent, the terms of Ms Bazzo's letter and the absence of any contrary evidence that, until at least 26 March 2013, Ms Bazzo understood the Guarantees to secure debts due by Success to the Bank under the 2010 Loan Agreements.  I am more confident in drawing this inference in circumstances where Ms Bazzo did not give any evidence to the contrary, and there was no explanation for her absence from the witness box.[26]

Notice of Demand

[26] Jones v Dunkel (1959) 101 CLR 298; Kuhl v Zurich Financial Services Australia Ltd [2011] HCA 11; (2011) 243 CLR 361 [63]; Coghlan v SH Lock (Australia) Ltd (1985) 4 NSWLR 158, 169.

1. On 6 November 2013, the Bank's solicitor issued a 'Notice of Demand on Guarantor' to Ms Bazzo, Prada and George 218 (Notice of Demand) (TB 1127 ‑ 1130).  The Notice of Demand referred to the 2007 and 2008 Loan Agreements (collectively referred to in the notice as the Loan Agreements) as varied, amended, substituted or replaced from time to time.  The notice also referred to the mortgages over 87 and 89 Muriel Court.  It referred to the Guarantees of Ms Bazzo, Prada and George 218, which were said to guarantee 'Success' obligations to [the Bank] under the Loan Agreements' (TB 1128).

2. The Notice of Demand asserted that Success had failed to repay the debt secured by the 2007 Loan Agreement by 19 July 2009 as required, or the 2008 Loan Agreement by 31 May 2009 as required.  It said that Mr Herbert had been appointed as receiver on 20 July 2012.  The demand indicated that the receiver sold 87 and 89 Muriel Court on or around 25 October 2013, and the proceeds of that sale were insufficient to repay the amounts owing under the Loan Agreements.  It demanded payment of $2,274,515.87 by 6 December 2013, made up of $2,265,789.98 owing under the 2007 Loan Agreement and $8,725.89 owing under the 2008 Loan Agreement (TB 1129).

3. On 19 December 2014, the Bank's solicitors issued a statutory demand to Gucce for the amount of $2,812,484.71.  This amount was said to be owed under the 2007 and 2008 Loan Agreements and the Guarantee given by Gucce on 24 April 2006 (TB 1131 ‑ 1136).  The statutory demand was set aside on 18 February 2015 (TB 1137).

4. Senior counsel for the Bank accepted that there had been no 'demand' for payment to Gucce for the purposes of cl 4 of the Guarantees, and accepted that the Notice of Demand was the only demand given to the other plaintiffs. 

Certification of amounts owing

1. Michael Clarke, a manager of the Bank, certified that, as at 26 August 2015, the amount owing by Success and the plaintiffs to the Bank was $3,208,341.14 in respect of account 21488391 and $2,970.31 in respect of account 21488348 (TB 1139). 

2. Mr Clarke also certified that, as at 6 November 2013, both Success and the plaintiffs were indebted to the Bank for the amount of $2,265,789.98 owing in respect of account 21488391 and $8,725.89 owing in respect of account 21488348.

3. I accept Mr Clarke's evidence that he obtained the information as to the amounts owing as at 26 August 2015 by inputting the account numbers and date into a computer program.  The Bank's computer program produced amounts owing on the accounts.  Mr Clarke did not check or consider the transactions which gave rise to those debts, but relied on the electronic record produced by the computer program.  Mr Clarke obtained the figures for 6 November 2013 by referring to earlier correspondence between the Bank and its solicitors. 

These proceedings

1. The plaintiffs commenced these proceedings, seeking declarations that the Bank is not entitled to any payment from them under the Guarantees.  Broadly speaking, that position is advanced on two bases. 

2. First, the plaintiffs say that they never executed any guarantee in favour of the Bank, and that the Guarantees only secured money due by Success to Statewest.  Success owes no money to Statewest.  The plaintiffs say that the Guarantees simply do not apply to secure the debt which Success owes to the Bank.

3. Secondly, the plaintiffs say that the Bank and receiver owed duties to them and Success.  This included a duty to take all reasonable care to sell the mortgaged properties for no less than their market value and to exercise the power of sale in good faith.  The plaintiffs also say that the Bank owed them a duty in relation to the appointment and removal of the receiver.  They say that the receiver acted as the Bank's agent.  The plaintiffs plead that the Bank and receiver breached these duties in the course of the Bank appointing the receiver and the receiver selling the mortgaged property.  The plaintiffs claim that these breaches of duty caused Success to realise insufficient funds from the sale of the mortgaged properties to discharge its debt to the Bank.

4. The Bank responds by contending that the Guarantees apply to secure the debt owed to the Bank by Success.  The Bank also says that, if the Guarantees do not apply, a common law estoppel by convention precludes the plaintiffs from denying that the Guarantees apply.  The Bank also denies the existence and breach of the duties alleged.  The Bank says that, in any event, such a breach, if established, would not disentitle the Bank to payment under the Guarantees, which provide that payments must be made without set off or counterclaim.

5. The Bank also counterclaims for payment under the Guarantees of the outstanding balance owed by Success to the Bank under what is characterised as the 2007 and 2008 Loan Agreements as extended by the 2010 Loan Agreements.  The plaintiffs deny their liability to pay on the grounds indicated above.

6. On 19 June 2015, I ordered that all issues in the proceedings, other than issues relating to paragraphs of the pleadings which concern the plaintiffs' claim of breach of duty by the Bank and receiver, be tried separately.

Issue 1:  application of Guarantees to 2010 Loan Agreements

Issue and answer

1. The first agreed issue is expressed in the following terms:

   1.Is the debt due by Success to the Bank under the 2010 Loan Agreements (TB 775 ‑ 782, 807 ‑ 810, 824 ‑ 833) 'Moneys Secured' within the meaning of the Guarantees, on the terms of the Guarantees:

   (a)as varied by s 22(1) and (2) of the Transfer Act and the certificate of transfer at TB 519 ‑ 523; and/or

   (b)as varied by the Deed of Consent (TB 811 ‑ 812)?

2. The plaintiffs contend that the answer to this question is 'no'.  The Bank contends that the answer is 'yes'.  I agree with the Bank.

Reasoning

1. The Guarantees secured all amounts lent or to be lent by Statewest to Success.

2. The debts Success owed to Statewest were discharged when the Statewest loan was paid out on 27 December 2006.  However, cl 11 of the Guarantees expressly provided that the discharge of that debt did not bring the Guarantees to an end.  The Guarantees continued to provide security for future lending by Statewest to Success.  The Guarantees conferred rights on Statewest which continued after the debt provided for by the Statewest Loan Agreement was repaid.  This included the right to call on the plaintiffs for repayment of any future loan which Statewest may grant Success, until such time as the plaintiffs terminated the Guarantees by notice under cl 9.  No such notice has been given. 

1. Even if I were wrong in finding that there was a valid demand in this case, it would remain the case that liability is established under cl 5 of the Guarantees and that liability does not turn on the issue of a demand.  I turn to consider that issue.

Issue 10:  liability without demand

Issue and answer

1. The tenth contentious issue requiring my consideration is expressed in the following terms:

   10.Does any liability of the plaintiffs to make payment under cl 5(a) of the Guarantees depend on the making of a demand for payment by the Bank?

2. For the following reasons, this question should be answered negatively, in the Bank's favour.

Reasoning

1. Clause 5(a) of the Guarantees, read with the Transfer Act and transfer certificate, requires the plaintiffs to indemnify the Bank against any loss which the Bank may suffer because for any reason Success fails to pay the Moneys Secured or the Moneys Secured are not recoverable from Success, or from the plaintiffs under cl 4, for any reason whatsoever.  It is clear that the unpaid balance of money due under the 2010 Loan Agreements is a loss suffered by the Bank as a result of the failure by Success to repay those amounts.

2. The issue is then one of construction of the Guarantees.  Does the plaintiffs' liability to indemnify the Bank against loss depend on the making of a demand?

3. In my view the answer to this question is plainly 'no'.  The obligation in cl 5 is not expressed to require a demand.  The effect of absence of provision for a demand, even in the case of a surety contract which must be strictly construed, is that liability ordinarily arises immediately and without demand.[66]  The plaintiffs submit that cl 5 is conditioned by the operation of cl 4, and so there is a requirement for a notice of demand.  That submission is inconsistent with the language of cl 5 of the Guarantees which makes it plain that the indemnity is an obligation which may be separately enforced.  Clause  5(a)(ii) makes it clear that the liability to indemnify under cl 5 does not depend on the liability under cl 4 having been engaged, by providing for the indemnity to apply where Moneys Secured are not recoverable under cl 4. 

   [66] Re Taylor; Ex parte Century 21 Real Estate Corporation (1995) 130 ALR 723, 725 - 726.

4. Therefore, a reasonable businessperson would have plainly understood that the liability under cl 5 did not depend on a demand being made.  I will make the assumption, favourable to the plaintiffs, that the liability for which cl 5 provides is collateral to the loan contracts rather than a primary liability.  On that assumption, on the proper construction of the Guarantees the collateral liability does not depend on the giving of a demand.  It is, therefore, unnecessary to consider the Bank's submission that cl 5 provides for a primary liability so that any contractual stipulation for a demand could be ignored.

5. There was some debate before me as to whether the Bank had pleaded a claim under cl 5 of the Guarantees.  In considering that question it is important to bear in mind that the Bank was required to plead the facts giving rise to liability, rather than the legal basis on which those facts give rise to liability.[67] 

   [67] Order 20 r 8 of the Rules of the Supreme Court 1971 (WA); see also Kendall C and Curthoys J, Civil Procedure Western Australia  [20.8.2] and [20.8.4] and cases there cited; Agtrack (NT) Pty Ltd v Hatfield [2005] HCA 38; (2005) 223 CLR 251 [12], [17], [42].

6. The material parts of cl 5 were pleaded together with cl 4 as a term of the Guarantees at par 5.2.1 ‑ 5.2.3 of the Defence and Counterclaim.  It is apparent from the pleading that both clauses were relied on as supporting the asserted liability of the plaintiffs to the Bank under the Guarantees.  The Bank pleads the failure by Success to repay the loans at par 62 and 63 of the Defence and Counterclaim.  The Bank pleads that amounts owing under those loans remained outstanding at par 67 of the Statement of Claim.  Although the making of a demand was pleaded at par 65 of the Defence and Counterclaim and admitted in par 17 of the Reply, there is nothing in the pleading which concedes that a demand was required as a condition of liability under cl 5. 

7. I note that the pleading issue is complicated by the fact that the Defence and Counterclaim refers to the '2007 Home Loan' and the '2008 Home Loan'.  However, those phrases were defined so as to include the 2007 and 2008 Loan Agreements 'as varied, amended, substituted or replaced from time to time including by the … July 2010 letters'.  That definition encompasses the 2010 Loan Agreements.

8. In my view, the claim under cl 5 was pleaded and is established without proof of a demand having been issued.

9. During the course of opening submissions on the first day of trial, senior counsel for the Bank accepted that, if the Notice of Demand was not an effective demand against George 218, Prada or Ms Bazzo, the Bank would not be entitled to other than declaratory relief against those parties.  She also accepted that, in the absence of any demand against Gucce, the court would make only a declaration against that company.  She indicated that in those circumstances it would be necessary for the Bank to issue fresh proceedings after issuing a valid demand.[68]

   [68] ts 155 - 157.

10. This concession was withdrawn on the morning of the second day of trial.  Senior counsel for the Bank indicated that, when she made the concession, she had overlooked the indemnity argument, and submitted that the indemnity did not depend on a demand.[69]

    [69] ts 243 - 244.

11. The plaintiffs assert that the Bank requires leave to withdraw the concession and that leave should be refused so late in the day.  I do not accept that leave is required for counsel to withdraw a concession on a point of law which was mistakenly made and which does not involve the abandonment of a claim.  The Bank's claim based on the indemnity had been pleaded and not withdrawn.

12. I was concerned that the plaintiffs have a reasonable opportunity to respond to the submission about the indemnity which had not been anticipated by the Bank's written submissions.  I offered the plaintiffs' counsel the opportunity to make further written or oral submissions on the issue, or anything else he required to be able to deal with the argument.[70]  As the issue is one of construction of the Guarantees, it does not appear that any additional facts could be relevant.  The plaintiffs did not suggest that they had been deprived of the opportunity to adduce evidence relevant to the issue.  The plaintiffs did take the opportunity to make additional written submissions.  I am satisfied that, in all the circumstances, the plaintiffs have been given a sufficient opportunity to respond to this aspect of the Bank's claim.

Issue 11:  set off

Issue and answer

[70] ts 331 - 333.

1. The final contentious issue for my determination is:

   11.Does cl 17 of the Guarantees operate to preclude the plaintiffs from relying on breaches of the duties asserted at par 75 ‑ 76B of the Statement of Claim (if established) as denying the Bank entitlement to payment under the Guarantees?

2. For the following reasons, the answer to this question is 'yes'.

Reasoning

1. The pleading referred to in this question is that referred to at [142] above. In summary the plaintiffs plead:

   1.breach of an alleged duty by the receiver in exercising the power of sale, allegedly as agent for the Bank;

   2.breach of an alleged duty owed by the Bank to the plaintiffs in appointing the receiver; and

   3.breach of an alleged duty owed by the Bank to the plaintiffs in failing to remove the receiver because of his conduct.

2. None of those claims impugn the Guarantees.  The complaints all relate to conduct as to enforcement of the securities.  The plaintiffs plead these breaches of duty as a defence to the counterclaim.  In the plaintiffs' Statement of Claim, the pleading is relied on in support of declarations that the Bank is not entitled to any payment under the Guarantees.

3. The Bank claims that cl 17 of the Guarantees provides an answer to the plaintiffs' pleading, even if breach of the alleged duties were to be established.  As noted above, cl 17 requires that all payments under the Guarantees be made free from any set off or counterclaim.

4. In addition, it is relevant to note that pt 14(a) of the General Conditions for the 2010 Loan Agreements provide that the borrower must pay:

   all money that you owe us [the Bank] in full.

   You must not deduct anything from any payment.  In particular, you must not deduct anything that you claim that we owe, or could in the future, owe you.

   We may set off any money we owe you against money you owe us (TB 800).

5. Both clauses are expressed in clear and broad terms.  Clause 17 of the Guarantees applies to 'all payments', requiring that they be free from any set off or counterclaim.  Part 14(a) of the General Conditions refers to 'any payment' and requires that Success not deduct 'anything', including 'anything you claim we owe'.

6. It is well recognised that such clauses are enforceable and exclude set off or a counterclaim whether the claim arising is statutory, common law or equitable.[71]  Clauses of this kind are generally construed as meaning what they say and as precluding reliance on any claim which does not impeach the guarantee itself.[72]  The purpose of such clauses is to prevent the commercial purpose of a guarantee being defeated by a plea of a set off or counterclaim by the guarantor as a defence to an action to enforce the guarantee.[73]

   [71] Oswal v Commonwealth Bank of Australia [2013] WASCA 58 [45], [54] - [55] and cases there cited.

   [72] In addition to Oswal, see St George Bank Ltd v Field [2007] NSWSC 902 [17] - [20]; Daewoo Australia Pty Ltd v Porter Crane Imports Pty Ltd [2000] QSC 50 [14] - [18], [22]; Perpetual Trustee Co Ltd v Kwok [2011] NSWSC 422 [19] - [24]; Norman v FEA Plantations Ltd [2011] FCAFC 99; (2011) 195 FCR 97 [194] - [201].

   [73] Continental Illinois National Bank & Trust Co of Chicago v Papanicolaou [1986] 2 Lloyd's Rep 441, cited in Oswal [20].

7. In the present case the claimed breaches of duty concern the enforcement of the securities held by the Bank and do not deny the existence of the plaintiffs' liability under the Guarantees.  They are pleaded only to resist the Bank's claim under the Guarantees.  That is, they are in substance pleaded as a set off which is precluded by cl 17 of the Guarantees.  The pleas, even if made out, do not impeach the Guarantees themselves and do not provide a basis for denying the Bank's counterclaim or granting the declaratory relief which the plaintiffs seek.

Interest and judgment sum

1. It follows from the above resolution of the contested issues that the plaintiffs' claim should be dismissed and judgment should be entered for the Bank on the counterclaim.

2. This brings me to two questions which have not been addressed by the parties' submissions.  The first concerns the date at which the principal judgment amount should be ascertained.  The second concerns the award of pre‑judgment interest. 

Date at which principal liability is to be ascertained

1. The amount claimed by the Bank in the counterclaim is $2,555,360.33 plus interest at 8.25% per annum from 10 April 2014, the date on which the Defence and Counterclaim was filed.  Paragraph 67 of the Defence and Counterclaim pleads that $2,555,360.33 was owed as of 10 April 2014.  However, the Bank has not attempted to prove the amount owing at 10 April 2014.  The Bank has proven the amount owing when the demand was made on 6 November 2013.

2. There is a difference of $936,795.57 in the amounts owing on 6 November 2013 and 26 August 2015 (TB 1139).  That amount cannot be explained as interest, and includes legal expenses charged to the loan accounts and $174,467.10 paid to close the receiver's account (TB 850 ‑ 854).  The Bank was entitled to charge Success the costs of enforcing the securities to the 2010 Loan Agreements by pt 15 of the General Conditions (TB 801).

3. A number of issues may arise in relation to an award of the amount owing by the plaintiffs to the Bank as at 26 August 2015.  The amount owing at that date is more than is claimed in the Defence and Counterclaim.  It would seem to include losses incurred by the Bank, or amounts which became owing by Success to the Bank, after the issue of the counterclaim.[74]  There is also the prospect that some of the debt incurred between 6 November 2013 and 26 August 2015 includes the costs of these proceedings, which raises the prospect that any costs order in these proceedings could involve double counting.

   [74] See Water Authority (WA) v AIL Holdings Pty Ltd (No 2) (1993) 10 WAR 233, 234 - 235; Catlin v National Australia Bank Ltd [2004] WASC 135 [8] - [9].

4. In the circumstances, there is a question as to whether an appropriate award would be of:

   (a)$2,274,515.87 (the amount owing by Success as at 6 November 2013) plus interest from that date until judgment; or

   (b)$3,211,311.44 (the amount owing by Success as at 26 August 2015) plus interest from that date until judgment.

Pre-judgment interest

1. The 2010 Loan Agreements provided for interest to be paid by Success to the Bank at the rate of '9.85% a year variable' (TB 825, 830).  The variable rate appears to have increased to 10.1% per annum by 12 September 2011, and reduced in steps so as to be 8% by 12 March 2015 (TB 842 ‑ 854).  I do not appear to have evidence of the precise dates on which the interest rates changed.  Under the General Conditions interest is payable, and effectively compounded, daily (TB 796).

2. The Bank's claim is for interest 'at the rate of 8.25% per annum'. An alternative claim is for interest at 6% per annum pursuant to s 32 of the Supreme Court Act 1935 (WA).

3. Given that interest accrues on Moneys Secured at the compounding interest rate provided for in the 2010 Loan Agreements, a question arises as to whether that interest is payable by the plaintiffs under contract for the purposes of s 31 of the Supreme Court Act. If not, what rate of interest should be allowed under s 32 of that Act? The question also arises as to whether there should be any compounding of interest as provided for in the 2010 Loan Agreements. Compounding cannot occur under s 32 of the Supreme Court Act, as s 32(2)(a) provides that the section does not authorise the giving of interest upon interest.

Further submissions

1. I have not had the benefit of substantive submissions on the matters raised under the previous two headings.  Before making any final order in these proceedings I shall give the parties a further opportunity to address the precise amount which should be subject of judgment in favour of the Bank, and tender evidence as to the amount of pre-judgment interest if agreement cannot be reached as to that matter.

Conclusion and orders

1. For the above reasons, the plaintiffs' claim must be dismissed.  I also consider it appropriate that judgment be entered for the Bank on its counterclaim.  I will hear from counsel in relation to the appropriate amount of that judgment (both as to the principal sum and interest), as well as to costs, before making orders finally disposing of the proceedings.

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA

IN CIVIL

CITATION: GEORGE 218 PTY LTD -v- BANK OF QUEENSLAND LTD [2015] WASC 434 (S)

CORAM:   MITCHELL J

HEARD:   27 NOVEMBER 2015

DELIVERED          :   27 NOVEMBER 2015

PUBLISHED           :  2 DECEMBER 2015

FILE NO/S:   CIV 2841 of 2013

BETWEEN:   GEORGE 218 PTY LTD

First Plaintiff

PRADA PTY LTD
Second Plaintiff

TINA MICHELLE BAZZO
Third Plaintiff

GUCCE HOLDINGS PTY LTD
Fourth Plaintiff

AND

BANK OF QUEENSLAND LTD
Defendant

Catchwords:

Banking and finance - Guarantees - Judgment sum, interest and costs issues - Turns on own facts

Legislation:

Civil Liability Act 2002 (WA), s 5AI, s 5AK
Legal Profession Act 2008 (WA), s 280(2)(c)
Rules of the Supreme Court 1971 (WA), O 21 r 3

Result:

Plaintiffs' claim dismissed
Judgment entered for defendant on its counterclaim

Category:    B

Representation:

Counsel:

First Plaintiff                :     Mr P G Clifford & Mr A P Rumsley

Second Plaintiff            :     Mr P G Clifford & Mr A P Rumsley

Third Plaintiff               :     Mr P G Clifford & Mr A P Rumsley

Fourth Plaintiff             :     Mr P G Clifford & Mr A P Rumsley

Defendant:     Ms K F Banks-Smith SC & Ms C A Petersen

Solicitors:

First Plaintiff                :     Alan Rumsley

Second Plaintiff            :     Alan Rumsley

Third Plaintiff               :     Alan Rumsley

Fourth Plaintiff             :     Alan Rumsley

Defendant:     Lavan Legal

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

George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434

Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72

The State of Western Australia v Collard [2015] WASCA 86

Wainwright v Barrick Gold of Australia Ltd [2014] WASCA 15 (S)

MITCHELL J: 

Background

1. On 16 November 2015, I delivered reasons for decision following a trial of preliminary issues in this matter.[75]  The trial was of all issues other than those raised by specified paragraphs of the pleadings, which were referred to in the order as 'Deferred Issues'.  In broad terms the Deferred Issues concerned the plaintiffs' claim, in support of their applications for declarations that the Bank was not entitled to payment under the Guarantees, that the Bank and receiver breached duties allegedly owed to the plaintiffs.

   [75] George 218 Pty Ltd v Bank of Queensland Ltd [2015] WASC 434.

2. I resolved the preliminary issues by determining that the Bank had established that the plaintiffs owed the Bank $2,274,515.87 as at 6 November 2013 and $3,211,311.44 as at 26 August 2015 under the Guarantees.  I also concluded that cl 17 of the Guarantees operated to preclude the plaintiffs from relying on breaches of duties asserted in specified paragraphs of the statement of claim, so that the plaintiffs' claims which formed part of the Deferred Issues did not affect the Bank's entitlement to payment from the plaintiffs under the Guarantees.  I expressed the view that it was therefore unnecessary to resolve the Deferred Issues to conclude that the plaintiffs' claim should be dismissed and the Bank should have judgment on the counterclaim.

3. In reaching those conclusions I noted two matters which had not been addressed by the parties' submissions.  The first concerned the date at which the principal judgment sum should be awarded.  The second issue concerned the rate of pre‑judgment interest to be applied to the award. I indicated that, before making any final order in these proceedings, I would give the parties a further opportunity to address the precise amount which should be subject of judgment in favour of the Bank, and tender evidence as to the amount of pre‑judgment interest if agreement cannot be reached as to that matter.  The matter was adjourned to today for that purpose.

Judgment sum

1. The Bank initially sought leave to re-open its case to read the affidavit of Michael Clark sworn 20 November 2015.  That affidavit sought to establish two matters.  First, it sought to adduce evidence as to the interest rates applicable under the 2010 Loan Agreements between April 2014 and November 2015.  Secondly, it sought to prove the amount the plaintiffs owed to the Bank under the Guarantees as at 10 April 2014.

2. However, during the course of submissions, senior counsel for the Bank withdrew the application for leave to reopen her case, and accepted that if judgment were to be entered today it should be in the amount of $2,274,515.87, being the amount established to be owing by the plaintiffs to the Bank on 6 November 2013, with simple interest at the rate of 6% per annum under s 31 and s 32 of the Supreme Court Act 1935 (WA). Subject to dealing with an issue arising under the Civil Liability Act 2002 (WA), I accept that it is appropriate to enter judgment for that sum on the counterclaim.

3. Interest at 6% per annum on the principal sum of $2,274,515.87 for the 751 days between 6 November 2013 and 27 November 2015 is $280,793.66.  Adding this allowance for interest to the principal sum results in a judgment sum of $2,555,309.53.

Civil Liability Act

1. One of the Deferred Issues is a plea in par 27 (formerly par 52D) and par 28 (formerly par 53) of the plaintiffs' defence to the counterclaim.  In those paragraphs it is pleaded that:

   27.Where there is a shortfall which is caused by a breach of the duty of the Receiver to take all reasonable care in exercising the power of sale in respect of the property the claim is an apportionable claim for the purposes of the Civil Liability Act 2002.

   28.If the Plaintiffs, or any of them, are found to be liable to the Defendant, as alleged, or at all:

   28.1The claims are apportionable claims for the purposes of the Civil Liability Act 2002;

   28.2The Receiver is a concurrent wrongdoer, for the purposes of the Civil Liability Act 2002;

   28.3Any liability of the Plaintiffs is limited under s 5AK(1) of the Civil Liability Act 2002.

2. The plea is without any merit whatsoever. An 'apportionable claim' is defined in s 5AI of the Civil Liability Act as:

   (a) a claim for economic loss or damage to property in an action for damages (whether in contract, tort or otherwise) arising from a failure to take reasonable care (but not including any claim arising out of personal injury); or

   (b) a claim for economic loss or damage to property in an action for damages under the Fair Trading Act 2010 based on misleading or deceptive conduct;

3. The Bank's claim against the plaintiffs is a claim for a contractual debt under the Guarantees. I will assume in the plaintiffs' favour that a claim for a contractual debt may be a claim for 'damages' for the purposes of s 5AK. However, the Bank's claim under the Guarantees does not arise from any allegation that the plaintiffs failed to take reasonable care, or any claim based on misleading and deceptive conduct. Nor are the plaintiffs arguably 'concurrent wrongdoers', being persons whose acts or omissions caused any damage or loss resulting from anyone's failure to take reasonable care. As the Bank's claim against the plaintiffs is not an apportionable claim, and they are not concurrent wrongdoers, s 5AK does not operate to limit their liability to the plaintiff. Section 5AK(1) does not apply, and if s 5AK(2) applies it would provide for the plaintiffs' liability under the non-apportionable claim to be determined in accordance with ordinary legal rules.

4. The plaintiffs argue that the claim against them is 'for damages … arising from the receiver's and Bank's 'failure to take reasonable care', because if the receiver had taken reasonable care then the Bank would not have suffered the loss and would not have needed to call on the Guarantee.  They therefore argue that the claim against them is an 'apportionable claim' for the purposes of the Civil Liability Act. I do not accept that submission, as it is plain that the claim must be for damages arising from a failure by the defendant or a person for whose conduct the defendant is responsible to take reasonable care. Further, even on the plaintiffs' argument, they would not be 'concurrent wrongdoers' whose liability is limited by s 5AK of the Civil Liability Act.  That is because there is no suggestion that the plaintiffs caused the damage or loss resulting from the receiver's or Bank's alleged failure to take reasonable care.

5. The plea as to the Civil Liability Act is without legal merit, and cannot provide a defence to the Bank's action against the plaintiffs under the Guarantees.  Although matters raised by the plea were not part of the trial of preliminary issues, there are no facts which could be proven which might assist the plaintiffs in relation to the legal defect in the plea. 

6. Counsel for the plaintiffs indicated that, because the pleading about the Civil Liability Act is a deferred issue, he had not come to court prepared to make submissions about the issue.  He had not considered a number of authorities which counsel for the Bank handed to the court from the bar table.  However, the pleading as to this issue is the plaintiffs' pleading which was signed by junior counsel for the plaintiffs.  The point was raised by the plaintiffs in submissions filed on 25 November 2015 as a reason why the resolution of preliminary issues should not lead to judgment being entered into in favour of the Bank.  In those circumstances it was incumbent on counsel to be in a position to explain the legal basis on which the claim might succeed.  Counsel for the plaintiffs was able to outline the plaintiff's case.  If I thought that the claim might have legal merit then I would have been prepared to adjourn the matter for further submissions. 

7. However nothing in counsel for the plaintiffs' submissions indicate any reasonable basis for thinking that the section might apply to limit the plaintiffs' liability to the Bank under the Guarantees. As s 5AK of the Civil Liability Act cannot apply to the present case on its terms as a matter of law, this plea does not provide any basis for denying judgment on the counterclaim to the Bank.  The defective nature of the plea means that there is nothing to be gained from having a further trial of that issue, and it does not stand in the way of the conclusion that the way in which the preliminary issues were resolved means that the Bank is entitled to judgment on its counterclaim.

Plaintiffs' claim

1. The plaintiffs' statement of claim as it stood at the trial of the preliminary issues asserted a breach of duty by the Bank and the receiver, but did not plead that the plaintiffs had suffered any damage as a result of that breach of duty.  The only relief claimed was for declarations that the Bank was not entitled to any payment from the plaintiffs under the Guarantees.  For the reasons previously published, that claim must be dismissed.

2. The situation is complicated by the fact that, since I published my earlier reasons, the plaintiffs have filed a further amended statement of claim, purportedly pursuant to O 21 r 3 of the Rules of the Supreme Court 1971 (WA). The amendment introduces pleas that the plaintiffs have suffered loss and damage, and the Bank has been unjustly enriched, by reason of the breach of duties alleged. This substantially alters the basis on which the plaintiffs' claim was advanced.

3. Order 21 r 3 of the Rules provides that a party may amend any of its pleadings, without the leave of the Court, by filing its amended pleading not later than seven weeks before the date fixed for the start of the trial of the case. However, since the date of seven weeks before the date fixed for the trial of the case has already passed, the plaintiffs' amendment to the statement of claim was not authorised by O 21 r 3 of the Rules. So much was implicitly accepted by the parties when they sought leave to amend the pleadings prior to trial. The trial of preliminary issues under O 32 r 4 of the Rules is part of the 'trial of the case' for the purposes of O 21 r 3(1) of the Rules. I would grant the Bank's application to set aside the amended pleading under O 2 r 1(2) of the Rules.

4. However, the plaintiffs indicate that they now wish to pursue a claim for damages in respect of the alleged breaches of duty by the Bank and receiver.  Such a claim for damages is not precluded by cl 17 of the Guarantees.  The plaintiffs are concerned that if their action is wholly dismissed, an attempt to begin new proceedings would be characterised as an abuse of process.

5. It is generally inconsistent with principles of case management to allow a party to amend its pleading to agitate new matters in the period between the pronouncement of reasons for dismissing the claim and the making of an order to that effect.  However, I am not prepared at this stage to shut the plaintiffs out of arguing that they should be granted leave to make an amendment to the existing pleading. That is, I will not wholly dismiss the plaintiffs' claim.

6. In the circumstances, the appropriate orders are that the amended statement of claim filed on 24 November 2015 be set aside, the plaintiffs' claim for declarations that the Bank is not entitled to any payment from the plaintiffs under the Guarantees should be dismissed and the plaintiffs should be given liberty to apply for leave to amend their statement of claim to plead a claim for damages against the defendant within 14 days.

Costs of the proceedings

1. The Bank has been wholly successful in the result of the proceedings.  The plaintiffs' claim (as it stood at the time of trial) has been dismissed.  Judgment has been entered for the Bank on the counterclaim.  The Bank was successful on all of the issues which I dealt with in the course of my reasons.  In my view, this is a case where the ordinary rule that costs follow the event should apply.[76]

   [76] Oshlack v Richmond River Council [1998] HCA 11; (1998) 193 CLR 72, [67]; The State of Western Australia v Collard [2015] WASCA 86 [25].

2. The plaintiffs have provided a schedule of issues which they say were conceded or abandoned by the Bank during the course of the trial of preliminary issues.  Having reviewed that schedule, I am not satisfied that any of the matters raised are of such significance as to justify a departure from the usual approach that costs follow the event.  In my view it is appropriate to order that the plaintiffs pay the whole of the Bank's costs of the proceedings to date.  The costs associated with the plaintiffs' new damages claim will be dealt with when that claim is resolved.

Removal of scale limits

1. The Bank seeks an order under s 280(2)(c) of the Legal Profession Act 2008 (WA) removing the costs limits provided for in items 3 (defence and counterclaim), 17 (preparation of case), 20(a) (counsel fee on brief) and 20(b) (senior counsel fee on brief) of the Legal Profession (Supreme Court)(Contentious Business) Determination 2014 and the Legal Profession (Supreme Court)(Contentious Business) Determination 2012.

2. I may make such an order if I am of the opinion that the amount of costs allowable in respect of a matter under a costs determination is inadequate because of the unusual difficulty, complexity or importance of the matter.

3. The applicable principles are well established.  The following general principles are taken from the decision of the Court of Appeal in Wainwright v Barrick Gold of Australia Ltd:[77]

   [77] Wainwright v Barrick Gold of Australia Ltd [2014] WASCA 15 (S) [7] - [9].

   1.Section 280(2) requires that before making an order pursuant to its terms the court must form an opinion which has two components.

   2.First, the court must determine that the amount of costs allowable in respect of a matter under a legal costs determination is inadequate in the sense that there is a fairly arguable case that the bill to be presented to the taxing officer may properly tax at an amount which is greater than the limit which would be imposed by the relevant costs determination.

   3.Second, the court must conclude that the inadequacy arises because of the 'unusual difficulty, complexity or importance of the matter'.  The word 'unusual' in s 280(2) qualifies only the 'difficulty' of the matter and not its complexity or importance.  The word 'unusual' in this context means unusual having regard to what one might describe as the usual run of civil cases determined in the Supreme and District Courts. That essentially involves the making of a value judgment by the court, having regard to the court's experience of the particular case when compared with the usual run of cases.

   4.Having heard the matter and being familiar with the way in which the case was conducted and the issues which were litigated, the court is in a position to form the opinions required under the section as matters of impression rather than science or mathematics.

4. Joseph Abberton, a partner of the Bank's solicitors, has deposed that counsel and solicitors spent 470 hours getting up for trial in the period of 1 September 2015 until the commencement of the trial of preliminary issues on 5 October 2015.  The time provided for preparation in the scale is 120 hours for solicitors and 3.5 days (or 35 hours) for each of senior and junior counsel.  Having regard to that evidence and the nature of the case generally, I am satisfied that there is a fairly arguable case that the bill to be presented to the taxing officer may properly tax at an amount which is greater than the limit which would be imposed by the relevant costs determination.

5. I am also satisfied that the reason for the inadequacy of the scale is the complexity of the matter, which involved tracing business arrangements and a series of agreements over a period of just over 9 years, issues of construction concerning the Financial Sector (Business Transfer and Group Restructure) Act 1999 (Cth) and a conventional estoppel argument which involved some complexity. Having sat through the trial, I am satisfied that the complexity of the case was such that the time reasonably taken by the Bank's legal representatives to perform the work required for the preparation of the case would have exceeded the maximum time provided for in the scale.

6. In the circumstances the appropriate course is to remove the limits for the specified items and leave the assessment of the value of work reasonably done to the taxing officer.

Orders

1.The plaintiffs' amended statement of claim filed on 24 November 2015 be set aside.

2.The plaintiffs' claim for declarations that the defendant is not entitled to any payment from the plaintiffs under the Deeds of Guarantee and Indemnity of or about 24 April 2006 is dismissed.

3.Judgment be entered for the defendant in the counterclaim in the sum of $2,555,309.53.

4.The plaintiffs, jointly and severally, pay the defendant the sum of $2,555,309.53.

5.The plaintiffs, jointly and severally, pay the defendant's costs of the action, including reserved costs, incurred up to 27 November 2015 to be taxed forthwith.

6.There be certificates for transcript of the hearings on 23 and 25 September 2015 and 5 - 7 October 2015.

7.For the purposes of taxing the defendant's costs, the limits on costs fixed in items 3, 17, 20(a) and 20(b) of the Legal Profession (Supreme Court) (Contentious Business) Determination 2014 and the Legal Profession (Supreme Court) (Contentious Business) Determination 2012 (as applicable) be removed.

8.The plaintiffs have liberty to apply for leave to amend their statement of claim to plead a claim for damages against the defendant within 14 days.

9.The matter be listed for further directions at 9.15 am on 27 January 2016.