Investec Bank (Australia) Ltd v Swain

[2011] NSWSC 182

Supreme Court

New South Wales

Medium Neutral Citation:	Investec Bank (Australia) Ltd v Swain [2011] NSWSC 182
Hearing dates:	Monday 7 February 2011
Decision date:	07 February 2011
Jurisdiction:	Common Law
Before:	McCallum J
Decision:
Catchwords:	GUARANTEE AND INDEMNITY - enforcement of guarantee - capacity in which guarantee provided
Category:	Procedural and other rulings
Parties:	P - Investec Bank (Australia) Limited ACN 071 292 594 D1 - Brian Lawrence Swain D2 - Noelene Joy Swain D3 - Graham Kenneth Iddles
Representation:	Counsel: P - Mr Pike D1, D2, D3 - No appearances Solicitors: P - Baker & McKenzie D1, D2, D3 - unrepresented
File Number(s):	2009/296864

Judgment

1. HER HONOUR : In August 2007 Investec Bank (Australia) Limited advanced $34.5 million to a company called Westmain Corporation Pty Limited to fund the acquisition of a development property in Perth known as the May Holman Centre. The security for the loan included a guarantee given by each of the defendants to these proceedings: Mr Brian Swain, Mrs Noeline Swain and Mr Graham Iddles. By these proceedings Investec seeks to enforce the guarantees.

1. Each of the defendants has filed a defence. At the time the defences were filed and indeed until last Friday the defendants were legally represented. The defences filed appear to have been drawn by the legal representatives. However, on Friday last an application was made to the duty judge ex parte by the defendants' former solicitor for leave to file a notice of ceasing to act. Leave was required because notices of intention to file a notice of ceasing to act, although served on the defendants, had not been filed in the Registry as required by r 7.29(2) of the Uniform Civil Procedure Rules 2005. The duty judge, Hidden J, granted the leave sought by the solicitor.

1. When the matter was called for hearing today there was no appearance for any of the defendants. Correspondence annexed to the affidavits read in support of the solicitor's application discloses that the defendants were made aware of today's hearing date as early as November last year. In all the circumstances disclosed in those affidavits, which were read last Friday, I determined to proceed in the defendants' absence.

1. Investec's claim is supported by three affidavits affirmed by its solicitor, Ms Chloe Neil. That material establishes that the loan to Westmain was governed by a written agreement constituted in a facility letter of offer dated 7 August 2007 offering the facility on terms accepted on 16 August 2007 by Westmain as borrower and by the defendants as guarantors. The initial term of the loan was 10 months from the date of first drawdown. That term was subsequently extended by 6 months by variation to the facility. The date of the first drawdown was 17 August 2007 when some $33,170,000 was drawn down. The loan was accordingly to be repaid by 17 December 2008.

1. The terms of the guarantees are set out in the document which is behind tab 2 of the exhibit to Ms Neil's first affidavit (exhibit A in the proceedings). By clause 3 of the guarantee in each case the liability of each guarantor is limited. That clause provides:

" 3. LIMITATION OF LIABILITY

(a) This document is a guarantee and indemnity for the whole of the Debt. However:-

(i) the total amount for which each Guarantor is liable under clause 2 is limited to a sum equal to the aggregate of:

(A) the amount specific in respect to each Guarantor listed in the Guarantee Schedule ( Specific Limitation Amount );

(B) an amount equal to all interest payable by the Borrower on an amount equal to the Specific Limitation Amount at the interest rate payable in respect of the Facilities; and

(C) an amount equal to all amounts payable by a Guarantor under clause 10.1

and where a Specific Limitation Amount is specified in respect o more than one Guarantor, those Guarantors shall be jointly and severally liable for the amounts referred to in clauses 3(a)(i)(A),(B) and (C); and

(ii) the total amount for which the Guarantors are together liable under clause 2 is limited to a sum equal to the aggregate of:

(A) $7,000,000;

(B) an amount equal to all interest payable by the Borrower at the interest rate payable in respect of the Facilities; and

(C) an amount equal to all amounts payable by a Guarantor under clause 10.1,

( General Limitation Amount ) subject always to the lim9tation in clause 3(a)(i) and provided that Investec may determine at its absolute discretion from which Guarantors it will recover the General Limitation Amount.

(b) The Guarantor acknowledges and agrees that this clause 3 does not:

(i) restrict Investec in its dealings with the Borrower and that the amount and extent of any financial accommodation which Investec may from time to time provide to the Borrower need not bear any relationship to any Specific Limitation Amount or General Limitation Amount; or

(ii) restrict the amount Investec can claim from a Guarantor and that it only limits the amount that Investec can ultimately recover from a Guarantor. "

1. The facility was not repaid within the extended term. On 29 January 2009 Investec formally demanded repayment from both the borrower and the guarantors. Subsequently, on about 31 March 2009, the parties entered into a deed of agreement apparently following a request by the borrower and the guarantors for further time to pay.

1. The deed of agreement is expressed to be, relevantly for present purposes, between Investec, Westmain as borrower, Mr Brian Swain "in his own right and as trustee of the Othila Trust", Mrs Noeline Swain "in her own right and as trustee of the Othila Trust" and Mr Graham Iddles. Each of Mr Swain, Mrs Swain, Mr Iddles and two companies is identified in the deed of agreement as a guarantor. The agreement defines "transaction parties" as the borrower and the guarantors.

1. The deed of agreement contains a series of acknowledgements and warranties, including the following:

"2.1.1 the Securities and Facility are valid and enforceable by Investec in accordance with their terms;

2.1.2 they have defaulted under the terms of the Securities and Facility;

2.1.3 Investec validly served the Demand on the Transaction Parties and the Transaction Parties are presently in default of the Demand;

2.1.4 the Secured Money is presently due and payable to Investec;

2.1.5 the Transaction Parties are liable to Investec for all amounts outstanding under the Facility together with interest fees, costs and expenses continuing to accrue on the debt; and

2.1.6 Investec is presently entitled, and following execution of this deed continues to be entitled, to charge interest on any amounts outstanding under the Facility at the Default Rate.

2.1.7 Investec is presently entitled to exercise any or all of its rights on default under the terms of the Facility and the Securities, including without limitation taking possession and selling the Mortgaged Property and enforcing on the Securities."

1. By clause 3.1 of the deed of agreement Investec agreed to forebear from exercising its rights under the facility and the guarantees until a certain date. That date was ultimately extended by variation to 17 August 2009.

1. By clause 7.2 of the deed of agreement the parties agreed as follows:

"If proceedings are commenced by Investec against any or all of the Transaction Parties to recover the Secured Money, the Transaction Parties agree that they will not defend the proceedings or seek to bring any cross claim in those proceedings."

1. As at 17 August 2009 the funds advanced to Westmain remained unpaid. On 29 October 2009 Investec served certificates pursuant to clause 10.3 of the guarantee. That clause provided that a certificate signed on behalf of Investec as to, among other things, an amount payable to it in the absence of manifest error is conclusive and binding on the guarantor.

1. The certificates served on the guarantors certified that as at 29 October 2009:

"3. (c) the amount payable to Investec by each Guarantor in connection with this Guarantee is $4,403,496.11, being:

(i) Principal of $3,500,000.00;

(ii) Interest of $873,444.91; and

(iii) Enforcement costs of $30,051.20."

1. The interest claimed in the certificates was $873,444.91. The methodology by which that sum was calculated is explained in Ms Neil's affidavit affirmed 26 August 2010.

1. In a further affidavit affirmed on 1 February 2011 Ms Neil has deposed to a further calculation undertaken by Investec with Ms Neil's involvement using the same methodology. That evidence establishes to my satisfaction that the total interest outstanding from each of the guarantors under the guarantee for the period ending today, 7 February 2011, in accordance with the terms of the guarantees is $1,524,327.40.

1. The only issue of any potential controversy in the proceedings relates to the capacity in which Mrs Swain provided her guarantee. The initial guarantee schedule describes as the first guarantor "Brian Lawrence Swain in his own capacity and as trustee for the Othila Trust, and Noeline Joy Swain as trustee for the Othila Trust". The limitation amount ascribed to those parties is "$3.5 million jointly and severally".

1. In her defence filed in the proceedings at paragraph 13 Mrs Swain acknowledges that she signed the guarantee but asserts that she signed it solely in her capacity as trustee for the Othila Trust. On the strength of the words I have just quoted there may have appeared to be some superficial force in that contention. However, there are two impediments to its success. One is that the deed of agreement records, as I have already noted, that Mrs Swain entered into that agreement in her own right and as trustee for the Othila Trust; in it she acknowledged, among other things, her own default under the terms of the securities and the facility. Further, as already noted, by clause 7.2 of the deed of agreement Mrs Swain has agreed that she would not defend these proceedings. That latter argument is pleaded on behalf of Investec in an amended reply that was filed in court this morning.

1. In all the circumstances I am satisfied that each of the defendants to these proceedings is jointly and severally liable in the sum deposed to in Ms Neil's most recent affidavit, that is in the sum of $3.5 million each plus the amount of interest to which I have already referred.

1. I note further that the facility makes provision in clause 10.1 for payment by each guarantor of "all costs (including legal costs as between solicitor and client), expenses and other amounts". The plaintiff has indicated that pursuant to that clause it seeks an order that the defendants pay its legal costs of these proceedings. No other expenses or costs are sought.

1. For those reasons I am satisfied that it is appropriate to make the orders sought in the short minutes of order provided to the court by Mr Pike on behalf of the plaintiff.

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Decision last updated: 21 March 2011