Green Square Gardens P/L v Metal Manufactures Ltd

[2000] NSWSC 1158

CITATION:	GREEN SQUARE GARDENS P/L v METAL MANUFACTURES LTD [2000] NSWSC 1158
CURRENT JURISDICTION:	Equity
FILE NUMBER(S):	SC 4027/99
HEARING DATE(S):	27-29/11/00
JUDGMENT DATE:	11 December 2000
PARTIES :	Green Square Gardens P/L - Plaintiff/First Cross-defendant Metal Manufactures Ltd - Defendant/Cross-claimant James Sutton Harrison Jr - Second Cross-defendant
JUDGMENT OF:	Bryson J at 1

COUNSEL :	J Svehla - Plaintiff and Cross-defendants G Seib - Defendant/Cross-claimant
SOLICITORS:	Hugh & Associates - Plaintiff and Cross-defendants Aitken McLachlan & Thorpe - Defendant/Cross-claimant
CATCHWORDS:	GUARANTEE - claim for declaration that moneys owed not secured by third party mortgage - claim that trading account and account service fee of third party secured by mortgage - non-compliance by creditor with agreed terms of credit as agreed between debtor and creditor - whether surety's obligations discharged - terms of trading account not established as agreed - departure not obviously unsubstantial - held, the surety was not liable and nothing was secured by the mortgage. - DEEDS - construction of deed of settlement relating to extension of credit facility - "entire agreement and understanding of the parties" over-rode earliler credit facility and personal guarantee.
LEGISLATION CITED:	Real Property Act 1900 s.57(2)(b)
CASES CITED:	Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549
DECISION:	See para 38

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

BRYSON J.

MONDAY 11 DECEMBER 2000

4027/99 GREEN SQUARE GARDENS PTY LTD v. METAL MANUFACTURES LIMITED

JUDGMENT

1   HIS HONOUR: The claim and cross-claim in these proceedings raise controversies relating to credit extended by the defendant, Metal Manufactures Ltd (MML), to Harrison Electrical Contracting Pty Ltd (HEC), now in liquidation. In the cross-claim MML seeks a declaration of the validity of Mortgage 56824516 granted by Green Square Gardens Pty Ltd (Green Square) to MML to give security for HEC's account for goods supplied by MML, and a declaration that a trading account and trading account service fee owed by HEC to MML are secured by the mortgage. The cross-claim also claims remedies to enforce the mortgage including possession of the mortgaged property, factory premises at 7 Powell Street, Waterloo, Folio Identifier 1/99695. The cross-claim further seeks to enforce remedies against the principal of HEC and Green Square, Mr J. S. Harrison Jnr, known as Jay. Green Square in its Amended Statement of Claim claims many declarations which would establish that no moneys are owing within the security of the mortgage, on various grounds, and seeks to restrain action in enforcement of the mortgage. The claims can be disposed of without addressing all of the many matters raised and debated during the hearing. 2   HEC went into administration on 9 August 1999. No arrangements for continuing its affairs emerged and the company went into liquidation on 20 September 1999. 3   Neither Green Square nor Mr Harrison is the principal debtor. Each is liable, if at all, as surety, and liability falls to be tested under the special principles applicable to the liability of sureties and stated in Ankar Pty Ltd v National Westminister Finance (Australia) Ltd (1987) 162 CLR 549. In that case Mason ACJ, Wilson, Brennan and Dawson JJ observed on the difficulties presented by authorities at 555, and at 555-7 stated the considerations which led to the conclusion in that case that the performance by the creditor of a contractual promise to the debtor was a condition of the obligation of the surety, and examined the special principle which applies in determining such a question in relation to the liability of a surety. After examining various expressions of the principle their Honours said at 559-60:

According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety’s rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk, e.g., a reduction in the debtor's debt or in the interest payable by the surety. The mere possibility of detriment is enough to bring about the discharge of the surety.

4   At 561 their Honours said:

At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.

5   At 562 their Honours applied this traditional view. 6   In his concurring judgment Deane J examined the law and its difficulties at 568-73. Deane J referred (at 568) to a passage in Halsbury around which argument had revolved in these terms:

The argument for Ankar was, to no small extent, founded upon a proposition extracted from Halsbury’s Laws of England, 4th ed., vol.20, p.141, para.259:
Any departure by the creditor from his contract with the surety without the surety’s consent, whether it be from the express terms of the guarantee itself or from the embodied terms of the principal contract, which is not obviously and without inquiry quite unsubstantial, will discharge the surety from liability, whether it injures him or not, for it constitutes an alteration in the surety’s obligations.

7   After reviewing case law Deane J said at 571:-

As has been seen, the above-quoted statement of the special rule in Halsbury that a departure by the creditor from the terms of his agreement will preclude the surety being held liable is qualified by being confined to the case where the departure is significant in the sense that it ‘is not obviously and without inquiry quite unsubstantial’. While some such qualification would seem to be established and desirable, there are some problems with that wording of it. In particular, it would seem arguable in some situations that it is impossible to appreciate the true nature or effect of a particular departure by the creditor from his promissory obligations without some knowledge of or inquiry into the circumstances surrounding its occurrence and that the limitation would be more appropriately framed without the reference to ‘without inquiry’.

8 In these proceedings Green Square took the initiative and commenced proceedings before MML approached the Court. Green Square's conduct was prompted by the service on it of a notice purportedly under s. 57(2)(b) of the Real Property Act 1900 signifying an intention to take possession under the mortgage. However the claims of each side were before the Court and each party tendered whatever evidence it thought right, and there are no troublesome questions of onus of proof or proof of negatives in support of claims for declarations. 9 MML is a very large enterprise and its business includes the sale of electrical goods to the wholesale market. HEC is said to have been formed in 1918 and when the events opened in recent years it was conducting business on a large scale as an electrical contractor and bought large supplies of electrical goods from MML. In 1998 MML and HEC were in dispute as to the liability or capacity of HEC to pay the claims of MML for sales, and MML commenced Commercial List proceedings 4856/98 in the District Court at Sydney on 6 July 1998 claiming $272,576.30 for goods supplied up to July 1997 and not paid for. HEC filed a defence, verified by Mr Harrison's affidavit, alleging that it would be inequitable to enforce the liability because the parties had acted under an arrangement made on 1 July 1997 for MML to treat itself as discharged on payment of $0.75 in the dollar. The merits of this defence were disputed but have never been established. Notwithstanding the District Court litigation, trading continued on the basis that credit was not allowed and goods were paid for on or about the time of delivery. 10 Discussions about trading on credit commenced on 1 June 1998 between Mr Harrison and Mr Murphy, who was regional general manager of TLE Electrical, MML's relevant division. For some time no result emerged as MML required payment of the whole of the old trading debt. At a meeting of 7 September 1999 of Mr Harrison with Mr Murphy and Mr Urban, who is general manager of finance and administration in a position superior to Mr Murphy, Mr Harrison put the position that he would make monthly payments to restore credit terms but he would not accept that these were payments on account of the old debts. After discussion Mr Harrison said that he wanted to run business at about $3m per year and said:

I suggest the fee be a trading account fee to be applied against $272,000.

11   There were some further negotiations about how much was to be paid, and what emerged was consensus that MML would open a trading account when there was a second mortgage securing the trading account against real property, and that this would be done on the understanding that HEC would pay $7500 per month as an account service fee against $272,000. Mr Harrison would have to sign a guarantee to underwrite the obligation personally. There were a number of matters left to determination and settlement of documents. 12   A short time after this consensus arrangements were put into effect using a printed form "Application for Credit Facilities" (Ex A, p.43) which set out the terms and conditions of a credit facility "in connection with the supply of goods". Under its terms MML was not committed to any particular limit of the credit facility, and was entitled to withdraw it at any time. Mr Harrison signed the credit facility on behalf of HEC, and he also executed a Guarantee printed on the same form by which he personally guaranteed payment and performance of obligations under the credit facility. He added to the printed form at two places written qualifications which showed that it related to goods supplied and credit extended from 15 September 1998; this excluded any possibility of his being liable for the claims in the District Court proceedings. The application form was completed and is variously dated 22 September and 23 September 1998, and thereafter credit began to be extended. At this stage there was no binding agreement establishing that the claims the subject of the then pending District Court proceedings were to be withdrawn or released or establishing any right to payment of an account service fee. 13   Correspondence proceeded towards giving effect to the remaining parts of the consensus which had been reached on 7 September 1998. Mr Harrison wrote a confirming letter on 25 September which among a number of things recorded that there was an interim credit limit of $250,000. The amount was not then secured. Correspondence continued, including correspondence between solicitors, directed to establishing the security which was to be given by Green Square as mortgagor, and this could not be done until purchase by Green Square of the property at Powell Street had been perfected. Correspondence on both sides meticulously established that a contractual arrangement was to emerge only with completion of the documents; see particularly letter from MML's solicitors 26 September 1998 (Ex A, p.30) and handwritten qualifications written by Mr Harrison on their further letter dated 2 November 1998 (Ex A, p.53). The complexities included the need to make arrangements between MML, Green Square and St. George Bank regulating priorities as between St. George Bank and MML as mortgagees so that the amount of St. George Bank's first tranche was established, MML had priority for a second tranche of a defined amount, and thereafter St. George Bank held a third tranche. The property at Powell Street was transferred to Green Square and mortgaged to St. George Bank by documents dated 17 December 1998. 14   The credit arrangements among MML, HEC, Mr Harrison and Green Square were perfected by a Deed of Settlement dated 10 February 1999 and a Mortgage granted on the same day. The Deed of Settlement provided for the Mortgage to take the form of documents annexed to the Deed of Settlement; in fact the mortgage as granted and registered departed in significant ways from the agreed form, and the departure was corrected by an agreement between the parties which I noted in an order of 27 November 2000 under which, for the purpose of these proceedings and determination of the issues, the mortgage is treated as being in the intended form and as conforming to the Deed of Settlement. 15   A number of the provisions of the Deed of Settlement need to be noted. The parties were MML, HEC, Mr Harrison and Green Square. There were recitals of the District Court proceedings, the defence and denial of liability, that "Mr Harrison is a director of (HEC) and of Green Square and Green Square is the owner of the property (as defined below)" and:

MML and (HEC) wish to resolve the Proceedings on the terms set out below, and (HEC) and Green Square acknowledge and agree that such resolution will benefit each of them and (HEC), and that MML has entered into this Deed at their request.

16   Clause 1, "Definition and Interpretation", contains the following provision:

1.1.6. This agreement sets forth the entire agreement and understanding of the parties relating to the subject matter contained herein and merges all prior discussions between the parties and no party shall be bound by any previous agreement, negotiations, commitments or writings except those expressly embodied herein.

17   The reference to previous agreements extends, on the natural and also the literal meaning of the words used, to the credit facility and the guarantee and indemnity given by HEC and Mr Harrison in September 1998. The intention of the parties is clearly and unmistakably that the Deed of Settlement should be the entire arrangement among all four parties relating to the matters with which it deals. 18   Clause 1.1.6 of the Deed shows that it was intended that that provision should overtake both existing credit arrangements for HEC and the existing surety arrangements for Mr Harrison. There is no express covenant given by or in favour of Mr Harrison anywhere in the Deed of Settlement, and apart from attracting for his benefit the provisions of cl.1.1.6 it is not possible to see why he was made a party to it at all. If it does not have that effect he would have been made a party to the Deed to no purpose, and in a commercial document that could not be a correct view. 19   Clause 2, "Trading Account", is in these terms:

2.1 MML shall establish and extend to Harrison a trading account with a credit limit of $700,000.00, subject to the usual terms and conditions of its trading accounts from time to time.
2.2 Harrison shall pay to MML, amounts invoiced to it by MML, in respect of purchases made by Harrison from MML on credit, within 60 days after the end of the month in which the invoiced purchase was made. No interest shall be payable in respect of invoiced amounts which are paid within such 60 day period.
2.3 If Harrison fails to pay MML any invoiced amount in accordance with clause 2.2 above, interest shall accrue on such invoiced amount, or any reduced balance thereof from the date that the invoice was due to be paid, at the rate of 1.25% per month, in daily rests, until such invoice amount is paid.
2.4 Nothing contained herein shall operate to exclude or limit the usual trading terms and conditions applied by MML to its creditor trading accounts from time to time, to the extent that such terms and conditions are not inconsistent with the terms of this Deed.

20   Clause 3, "Trading Account Service Fee", is in these terms:

3.1 In consideration of the entry into this Deed by MML, and the servicing of the said Trading Account from time to time, Harrison shall pay to MML the Trading Account Service Fee, in accordance with this clause.
3.2 The Trading Account Service Fee shall be paid in monthly instalments, as set out below:

(a) $7,500.00 per month for twelve (12) months, the first of such payments to be made on or before 31 January 1999, and subsequently on the final day of the next element (11) successive months; and
(b) $10,000.00 per month for eighteen (18) months, the first of such payments to be made on or before 31 January 2000, and subsequently on the final day of each of the successive seventeen (17) months.
3.3 No interest shall accrue on instalments of the Trading Account Service Fee, provided such payments are made within sixty (60) days of the dates on which payment is due. Interest shall accrue on any instalment which is unpaid within sixty (60) days of the due date, at the prime benchmark rates as nominated by National Australia Bank plus 2%.
3.4 The parties to this Deed agree that MML reserves its right to sue for any unpaid balance of the Trading Account Service Fee that remains outstanding as at the date of the cancellation termination or suspension of the Trading Account.

21   Clause 4, "Second Mortgage", provides:

4.1 Green Square shall execute, on the date hereof, the second mortgage …

which is identified as the annexed form. Clause 4 goes on to deal with stamp duty and the entitlement of St. George Bank to priority.

22   Clause 4.2 is in these terms:

4.2 MML shall arrange to pay for the amount required in order to arrange for the Mortgage to be stamped with loan security duty in New South Wales, and registered at the Land Titles Office.

23   The annexed Mortgage was to be in a standard printed form incorporating standard terms in Memorandum Q.860000 and also Annexure A (which was the subject of the agreement for rectification.) The first clause in Annexure A was in these terms:

Firstly - That this mortgage is granted as security for:
(i) the obligations of the Mortgagor pursuant to Deed of Settlement between the Borrower, Mortgagor and the Mortgagee of even date;
(ii) the obligations of the Borrower pursuant to clauses 2.1 to 2.4 of the Deed of Settlement between the Borrower, Mortgagor and the Mortgagee of even date.
And the mortgage debt shall include all moneys actually or contingently payable to the Mortgagee by the Mortgagor or the Borrower as the case may require pursuant to the documents referred to in paragraphs(s) (b)(i)-(ii) of this clause together with such other moneys as may be or become owing by the Mortgagor whether by way of damages or otherwise pursuant to the other provisions of this Mortgage to the intent that default in the punctual observance and performance of the terms covenants and conditions contained in or implied by the documents referred to in paragraph(s) (b)(i)-(ii) of this clause will constitute a default under this mortgage whereupon the mortgage debt may be recovered by the Mortgagee exercising its rights under this mortgage or any of the said other documents separately or concurrently and none of the documents shall be in any way secondary to the other and the Mortgagee shall be entitled to enforce any of its rights under any of the documents without any reference to the other and without first having to resort to its rights under any one of the documents including this mortgage.

24   Counsel for Green Square took the position, not taken in any pleading, that the second mortgage was insufficiently stamped and should not be admitted into evidence for that reason. It was not possible to decide, at the time when the objection was taken, whether the stamp was sufficient, and I admitted the second mortgage provisionally. As the effect of the holdings in this judgment is that the second mortgage did not, when it was granted or at any time since, secure any money, I am of the view that it was sufficiently stamped at $5.00 and should be admitted in evidence. 25   The course of trading on credit, which had been well established since September 1998, continued after the grant of the Deed of Priority as before. The mortgage was stamped and registered, and the flow of payments from HEC to MML continued. Some of these payments were expressly designated by HEC, by remittance slips which accompanied the cheques, as paid in respect of particular parts of the outstanding accounts. Some were identifiable as so intended by their being for amounts which corresponded exactly with particular charges in the outstanding accounts. Otherwise MML's accounting staff appropriated payments as received to the oldest outstanding debt, reckoned from the commencement of the credit arrangements in September 1998. The previous District Court proceedings were discontinued, not immediately but in May 1999. MML began to make charges and render invoices for monthly trading account service fees of $7500 for each month commencing with January 1999; the invoice for that month (Ex A, p.397) describes the charge as "agreement repayment/repayment as agreed $7,500 per month Harrison/TLE.” The trading account service fee was entered in the general statements of the account for supply of goods. HEC paid some of these fees, sometimes designating particular payments as appropriated to trading account service fee. 26   Considerable attention was devoted at the hearing to evidence and argument directed to showing that in some way MML was in breach of obligations under the Deed of Settlement in relation to the manner in which payments by HEC were appropriated to particular parts of the account. Green Square's position was that from 10 February onwards the account should have been conducted on the basis that all payments went against the charges accruing after 10 February 1999. In my view there is no substance in this; there is no provision in the Deed of Settlement which expressly or impliedly limits MML's opportunity to appropriate payments which had not been appropriated by HEC to particular debts then owing by HEC, whether the debts arose before or after 10 February 1999. In fact very significant amounts so appropriated were appropriated in accordance with exact written requirements of HEC, and several others in accordance with directions given by telephone, sworn to by MML's accounting staff, whose evidence about the appropriations I accept. 27   There was also considerable argument on whether the mortgage secured and made Green Square liable for trading account service fees as well as the goods supplied. In the first clause of Annexure A, set out above, it is first stated that the mortgage is granted as security for stated obligations including obligations of HEC pursuant to cll.2.1 to 2.4 of the Deed of Settlement, those clauses do not include obligations relating to the trading account service fee. However later expressions in the first clause are to the effect that the mortgage debt is to include all moneys payable pursuant to the documents referred to in the earlier sub-paragraphs; that is to say, not payable pursuant to cll.2.1-2.4 but pursuant to the Deed of Settlement and the Mortgage. It is plainly stated that all obligations of HEC under the Deed of Settlement are secured, and these include the obligations to pay trading account service fees. 28   The trading account service fee is a curious charge; it represents the outcome of MML's insistence during negotiations of being paid the amount claimed in the District Court proceedings (although it is not exactly that amount, but a round $270,000) and Mr Harrison's insistence that the amount would not be acknowledged as a debt. In the Deed of Settlement it is not clearly stated what the trading account service fee is paid for, but the obligation to pay it is clearly undertaken. The terms of the document establish that it was payable for what its name implies, that is a fee for servicing the trading account. The terms of the Deed of Settlement in my opinion establish clearly that the whole $270,000 was to be payable, although the time of payment was deferred by provisions relating to instalments, and could be accelerated on default. Liability to pay the fee was not made interdependent with HEC's making use of credit, or being able to make use of credit. When HEC defaulted, that default precipitated payability by HEC of the whole unpaid balance of the trading account service fee and, subject to some later observations, would have precipitated the secured liability of Green Square for the same amount. There were also arguments of some elaboration to the effect that the trading account service fee was void as a penalty, or that the balance precipitated for payability on default was. In my view there is no element which associates its payability with the law relating to penalty. 29   Clause 2.1 requires MML to do several things. One is to establish and extend to HEC a trading account. Another is that the trading account should have a credit limit of $700,000. The trading account was to be subject to the usual terms and conditions referred to. In fact the records relating to trading continue uninterrupted as if the previous trading account operating since September continued unaltered. This is illustrated by the statement rendered at the end of February 1999 (Ex A, pp.310-7). The account code number continued as in earlier months as 727689, and there was no break or differentiation at or around 10 February. Balances outstanding at the end of monthly statements did not distinguish trading before 10 February from trading on or after that date. 30   In fact by the time the May statement was rendered a little after 31 May 1999 all charges for February 1999 and earlier had been paid by payment and appropriations, and nothing remained due in respect of trading in February or earlier, whether before or after 10 February. If the terms of the Deed of Settlement, contrary to my view, left any room for operation of the earlier credit arrangements and the liability of Mr Harrison under them, the debts to which they related were thus extinguished. 31   In my view it is clear from the evidence that MML did not establish and extend to HEC a trading account in accordance with the obligation in cl.2.1; all that MML did was continue to operate the earlier trading account. This departure does not in my opinion have any effect on the liability of Green Square under its mortgage because at all times the charges incurred before 10 February and the charges from that date on could be very readily recognised and separated if for any purpose it was significant to do so. This departure from the contractual obligation of cl.2.1 is one of the kind referred to by Deane J in Ankar at 271-2; the departure was obviously and without enquiry quite unsubstantial. 32   With respect to the credit limit there was a departure of a serious character. Mr Urban who had authority in that regard had earlier extended credit limits to HEC under the arrangements of September; first of $250,000, later of $350,000 and then a third limit of $650,000. At or in relation to the events of 10 February he made no further decision; the only decision relating to the credit limit on the account which had effect after that date was his earlier decision to establish a credit limit of $650,000. That this is so was established quite clearly by his own express oral evidence. Counsel for MML submitted earnestly that it should be inferred from various arithmetical analyses of the statements that there had been some other decision establishing a credit limit; I cannot accept any of this reasoning because Mr Urban's evidence shows that it is incorrect. In any event, I did not understand that there was any clear line of reasoning which tended to show that there was any particular credit limit by working back from the amounts of credit outstanding at various times, and from the amounts of payments made. Counsel contended to the effect that it should be inferred that there were times when credit of a greater amount than $700,000 was in fact extended. I am unable to follow why I should so infer, as the statements to which he referred do not, as a matter of reading their terms bear it out. In any event it is one thing to observe that credit actually ran over $650,000; it is quite another thing to establish that the trading account was or was not a trading account with a credit limit of $700,000. 33   Not establishing a credit limit of $700,000 does not in my view fall within the category of being obviously without enquiry quite unsubstantial. Quite the reverse, having a credit limit by reference to which transactions could confidently take place, which staff of MML would have authority to follow and which would govern how they could be expected to behave was obviously important for the interests of HEC in conducting trade on credit. Those interests could be severely prejudiced if it received less credit, or received delivery of goods at other times or failed to receive deliveries of goods which would have happened if it had enjoyed the benefits of an established credit limit for a defined amount. In my opinion MML did not comply with the exacting requirements for which Ankar is authority and on which liability of sureties including Green Square is based. As cl.2.1 was not ever complied with, the liability of Green Square as a surety did not ever come into operation. For this reason Green Square incurred no liability under the mortgage. 34   If contrary to my view the credit facility of September 1998 and Mr Harrison's guarantee continued in effect after 10 February 1999 Mr Harrison would have the benefit of the same exception, because the provisions of cl.2.1 would then form part of the contractual terms of trading to which HEC was entitled, and their not being complied with would mean that any surety would be exempted from liability. 35   The rules relating to the position of a surety are stringent and might be thought not always to reflect broad merits, but those rules and their application in this case are in my view quite clear, and their effect is that neither Mr Harrison nor Green Square is liable as surety for any amount. 36   A further group of issues related to the circumstances in which the guarantee of September was delivered back to Mr Harrison by Mr Murphy in response to requests by Mr Harrison to Mr Murphy and later to Mr Urban. This happened late in July, about eleven days before HEC went into administration. MML's case was that Mr Harrison had obtained its redelivery by making false and fraudulent representations to Mr Murphy about the state of HEC's affairs, and by misleading and deceptive conduct towards Mr Urban. To address this case it must be assumed, for the moment, that the guarantee was still effective. In the circumstances Mr Harrison should have revealed the state of those affairs and the imminence of administration when he sought redelivery of the guarantee. Delivery of the guarantee document was an unmistakably clear token of agreement that it was not to be relied upon, but left unclear whether it was not to be relied on for future transactions only, or whether the guarantee liability incurred at the time of redelivery was to continue to exist. The presence or absence of consideration for its release, not obvious in this case, and any terms of the guarantee document relating to the effect of redelivery, may also be important. 37   Any fraud or deception which it might be found Mr Harrison practised on Mr Murphy could have no effect on the outcome as there is no evidence that Mr Murphy relayed the representations to Mr Urban, no evidence that Mr Harrison made like representations in his direct dealings with Mr Urban, and no basis for finding that any such representations caused the redelivery of the documents. Mr Harrison did not deal frankly and openly with Mr Urban; in the absence of any explanation by Mr Harrison I proceed readily to the inference based on his position as the leading figure in HEC's affairs and its only director that he must have known that HEC had not paid its group tax since February and was insolvent. In the circumstances in which he stood it was misleading and deceptive of him not to reveal this when he asked for redelivery of the guarantee. All this is of no significance because the guarantee was no longer effective; its effect had been brought to an end by cl.1.1.6, clearly so, and even more clearly so for transactions from 10 February 1999 onwards; and all debts incurred by HEC earlier than that date had been paid off. As Mr Harrison had no continuing liability, the redelivery of the document had no significance and no remedy should be awarded in respect of it.

38  

My Orders are:

On the plaintiff’s claim:

(1) Declare that no money is secured to the defendant by Mortgage 5682451E.

(2) Order that the defendant be permanently restrained from taking possession of the mortgaged premises at 7 Powell Street, Waterloo, Folio Identifier 1/996695 and from taking any step in enforcement of the Mortgage.

(3) Order that the defendant pay the plaintiff’s costs of the proceedings.

On the Cross-claim:

(4) give judgment for the cross-defendants with costs.

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Last Modified: 12/18/2000