Kingsway Group Ltd v Looknear Pty Ltd

[2009] NSWSC 1316

CITATION:	Kingsway Group Ltd v Looknear Pty Ltd [2009] NSWSC 1316
HEARING DATE(S):	27 November 2009
JUDGMENT DATE :	27 November 2009
JUDGMENT OF:	Harrison J
EX TEMPORE JUDGMENT DATE:	27 November 2009
DECISION:	1. The Notice of Motion filed by the second and third defendants on 16 October 2009 is dismissed. 2. I order the second and third defendants to pay the plaintiff’s costs of the motion.
CATCHWORDS:	PRACTICE AND PROCEDURE –– application to set aside summary judgment pursuant to UCPR 36.16(2)(b) –application for adjournment – where defendants contest liability as guarantors - where delay in bringing application to set aside judgment – where failure to appear in response to application for summary judgment – where no defence on the merits - application dismissed
LEGISLATION CITED:	Contracts Review Act 1980 Uniform Civil Procedure Rules
PARTIES:	Kingsway Group Ltd (Plaintiff) Looknear Pty Ltd (First Defendant) Matthew Howard Paul Daniel (Second Defendant) Rusty Moran (Third Defendant)
FILE NUMBER(S):	SC 10174/2009
COUNSEL:	H Altan (Plaintiff) R Freeman (Second and Third Defendants)
SOLICITORS:	Willis & Bowring (Plaintiff)

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

HARRISON J

27 November 2009

10174 / 2009 Kingsway Group Ltd v Looknear Pty Ltd, Matthew Howard Paul Daniel and Rusty Moran

JUDGMENT – EX TEMPORE

1 HIS HONOUR: These proceedings come before me today pursuant to a motion filed by the second and third defendants on 16 October 2009, by which they seek orders that include an order that summary judgment entered against them on 28 July 2009 be set aside. Mr Freeman appears for the second and third defendants on that application but, as he has clearly indicated, with instructions that are presently limited to an application for an adjournment until at least a date next week by which time, among other things, senior counsel will have had an opportunity to come into the matter. Mr Altan, who appears for the plaintiff, opposes the relief sought in the notice of motion but in advance of the ultimate disposition of the motion, he also opposes even the second and third defendants' application for the short adjournment that they seek. Some background to this dispute is necessary.

2 The proceedings were originally commenced by statement of claim filed on 15 January 2009. The statement of claim goes into some considerable but commendable detail in the way that it pleads the plaintiff's case. For present purposes it is sufficient to note that the plaintiff advanced money to Looknear Pty Ltd, the first defendant, for a development project that it proposed to conduct on certain land at Barden Ridge in New South Wales. The statement of claim pleads that on or about 9 February 2007 the plaintiff offered to advance the first defendant $265,000 and that on or about 9 May 2007 that offer was accepted. A loan agreement dated 10 May 2007 was ultimately executed and associated security documentation came into effect. I will refer to this documentation in more detail shortly.

3 The statement of claim goes on to allege that a further advance in December 2007 of some $484,000 was made and that security documentation in relevantly identical terms was executed. The plaintiff contended that the second and third defendants guaranteed the first defendant's obligations in respect of the loan to it both on the first occasion and on the second occasion. By the time the proceedings commenced the plaintiff alleged that it had advanced to the first defendant a total sum of almost $745,000.

4 All three defendants filed a defence in this Court on 1 June 2009. I am informed that that document was prepared without the benefit of legal advice to any of the defendants. It is largely in the form of a general denial of liability either by the first defendant for repayment of the loan, or by the second and third defendants as guarantors of the first defendant's obligations. Paragraph 36 of the defence is in the following terms:

"The defendants deny that the plaintiff is entitled to any of the claims that it makes in that the first defendant did not contract with the plaintiff, did not at any time borrow moneys from the plaintiff and is not obliged to repay any monies to the plaintiff. The second and third defendants did not at any time guarantee or indemnify the plaintiff with respect to any obligations that the plaintiff alleges that the first defendant owed or owes to it."

5 The second and third defendants swore the usual affidavits deposing to the truth of the defence on behalf of themselves, and the second defendant swore a similar affidavit on behalf of the first defendant in his expressed capacity as its director. In due course the plaintiff made an application for summary judgment, which came before the Chief Judge at Common Law on 27 July 2009. There was no appearance on behalf of the defendants at that time. A transcript of proceedings on that day adequately recalls what occurred. His Honour was satisfied on the basis of the evidence filed by the plaintiff that the plaintiff had "made good its claim and there is no apparent defence to that claim".

6 That judgment is the subject matter of the second and third defendants' application before me. That application proceeds, so I am informed, for relief pursuant to UCPR 36.16(2)(b). That rule provides that the Court may set aside or vary the judgment or order after it has been entered if it has been so made in the absence of a party, whether or not the absent party had notice of the relevant hearing or of the application for the judgment or order. It is at the heart of the second and third defendants' application for an adjournment of this motion today that it can first explain the delay in bringing the present application since the date of the entry of summary judgment and the filing of their motion of 16 October 2009. Secondly, that they can explain, if explanation be required, for present purposes why they failed to appear in response to the plaintiff's application for summary judgment. Thirdly, and perhaps most significantly, that they can establish that they have a defence on the merits.

7 The second and third defendants have each sworn affidavits, although the affidavit of Matthew Howard Paul Daniel sworn 16 October 2009 contains the relevant documentation to which my attention has been drawn. Mr Rusty Moran, the second defendant, has sworn an affidavit in which, for relevant purposes, he adopts the material deposed to by Mr Daniel. Two letters of offer are relevant. The first is dated 9 February 2007 and it is the letter of offer by which the plaintiff set out the terms and conditions upon which it indicated it was prepared to advance $265,000 to the plaintiff. Clause 8 of that letter is headed "Security and Other Documents". It is in the following terms:

"Security is to be in the form acceptable to the Lender and its solicitors and is to include, but is not limited to, the following:

(a) Loan agreement;

(b) First registered mortgage from (the first defendant)...

(c) Registered fixed and floating charge over the assets and undertakings of (the first defendant)....

(d) Guarantees from Rusty John Moran and Matthew Howard Daniel.

The Lender's security documents provide that whenever the Borrower or the security provider to the Lender either presently or in the future provides any security to the Lender for moneys owed by the Borrower it will secure any amounts due. Amounts owing under this facility will therefore be secured by any such securities whether or not they have previously provided [sic] or will provide [sic] in the future. A security provider may be the Borrower, a Guarantor or any Mortgagor."

8 It seems to be uncontroversial that the first defendant accepted that offer and that the second and third defendants each provided a guarantee as contemplated by its terms. Indeed, notwithstanding the terms of the original defence filed, Mr Daniel's affidavit annexes a copy of a deed of guarantee and an indemnity signed by him and Mr Moran as guarantors. On 6 December 2007 the plaintiff provided a second letter of offer in cognate terms to the first defendant. It offered to advance $749,000 to the first defendant. Clause 7 of that document was headed "Purpose of Loan". It was described as follows:

"To refinance existing Kingsway debt and then providing additional funds to assist meet other group expenses and costs associated with obtaining construction certificate over [the Barden Ridge property] in accordance with the funding table as summarised below"

9 That funding table included a reference to a refinance of the existing debt of $265,000, the payment of interest and fees totalling $75,000 and with another minor exception the provision of working capital requirements in the sum of $405,500.

10 Clause 8 of the second letter of offer was in identical terms to the first. As with the first offer, the second letter of offer is subscribed on its last page by Mr Moran and Mr Daniel and also on behalf of the first defendant. Mr Moran and Mr Daniel have executed the last page of the letter of offer under the heading "Acknowledgement by guarantors". A printed portion of that page adjacent to the respective signatures says in each case "Signed by Rusty John Moran (guarantor)" and "Signed by Matthew Howard Daniel (guarantor)". I am informed by Mr Freeman of counsel who appears for the first and second defendants in the limited manner earlier described that in accordance with his instructions there is a challenge by the second and third defendants to the existence of their obligations as guarantors of at least the further advance referred to in the second letter of offer.

11 The precise position taken by the second and third defendants in relation to their liability to the plaintiff concerning the first advance remains unclear. This is because the burden of the argument propounded on their behalf is to suggest that they did not guarantee, and on another view would not have guaranteed, the second or further advance if they had been aware that the plaintiff would not have continued to provide funds to the first defendant, or would not have permitted it to complete its development which, on this analysis, ultimately failed for want of the provision of sufficient finance. Mr Daniel's affidavit refers, among other things, to the fact that on or about 6 December 2007, the initial development funds of $749,000 were obtained. This sum included a component for capitalised interest, which refinanced the initial acquisition funds and group working capital requirements.

12 I take that evidence to mean what is probably uncontroversial, that the first defendant received $749,000 from the plaintiff pursuant to the loan agreement dated 6 December 2007. The same affidavit proceeds to describe the second loan, which the affidavit refers to as "the second facility", as having been provided for additional working capital for the group although Mr Daniel appears to say that he understood that additional capital for the venture (presumably if required) "would not be a problem". He proceeds to describe the fact that funds necessary to complete the venture beyond the total amount of money advanced by the plaintiff to the first defendant were not forthcoming. At par 30 of his affidavit Mr Daniel says the following:

"[30] Had I been informed by Kingsway that the project would not be fully funded to completion, especially to deal with DA conditions regarding the fire trail allowance for capitalising interest or prepaid interest I would not have provided a guarantee for the facility ." [Emphasis added]

13 At par 35 of his affidavit Mr Daniel says the following:

"[35] It is for these reasons that I would not have given my guarantee if Kingsway were not prepared to fully fund the project to completion and allow for capitalising interests [sic] to take place." [Emphasis added]

14 Mr Moran's affidavit, also sworn on 16 October 2009, refers to the fact that he read the affidavit of Mr Daniel and that he agreed with its contents. At par 9 of his affidavit he says the following:

"[9] I myself would not have either allowed Looknear to go into the development or given my personal guarantee had I not been lead [sic] to believe that full funding would always be made available to ensure sufficient return to pay back the loan and make a profit for Looknear." [Emphasis added]

15 Even though a deed of guarantee and indemnity was executed at the time of the first advance, no equivalent document was prepared at the time of the second letter of offer or the further advance. Mr Freeman contends that because the second advance operated as a refinance of the first, and because the guarantees were not re-executed having regard to the terms of the letters of offer, the plaintiff either lost the benefit of the guarantees in relation to the whole of the moneys advanced or alternatively never received the benefit of guarantees in relation to the second advance. However, as the affidavit evidence to which I have referred clearly demonstrates, the second and third defendants have each unambiguously confessed their execution of the guarantees in question, even if they are now attempting by reference to the terms of these alleged representations to avoid them. The timing inherent in the reference to the representations about funding to complete the project clearly and necessarily informs the proposition that the guarantees that the second and third defendants have admitted giving post-dated the second loan agreement and covered or extended to the obligations that it created.

16 I perceive that if given the opportunity to do so the second and third defendants would formulate a defence denying liability to the plaintiff as guarantors, incorporating these arguments and others to similar or like effect. For example, I am informed that the second and third defendants will argue that the final paragraph of cl 8 of the letters of offer contemplate that the guarantees originally given do not extend to future advances. However, despite Mr Freeman's best efforts, and having regard again to the limited instructions that he has, it seems to me that all these arguments are without any merit at all.

17 The second and third defendants contend they were without legal advice at the time that the original defence was filed. For reasons best known to them they chose not to contest the application for summary judgment. Even when summary judgment was obtained they chose again for reasons that are presently unexplained to wait nearly three months to put on an application to set aside that judgment. Even with the benefit of that period of time and now with the benefit of legal advice, no proposed amended defence by either of them in a form giving effect to any of these arguments has been prepared, annexed to an affidavit or provided to the Court in draft. In my opinion the second and third defendants do not have and cannot demonstrate the existence of an arguable defence to the plaintiff's claim. Their application to set aside the judgment against them would be futile.

18 In my opinion the documents when read as a whole according to their terms demonstrate clearly that the second and third defendants became and remained liable as guarantors for the whole of the moneys advanced by the plaintiff to the first defendant, including the second advance. Despite the ingenuity of the argument it also does not seem to me to be arguable from the terms of the security documentation that the plaintiff gave up the benefit of guarantees it had from the second and third defendants for the first advance when it chose to enter into a second agreement. This argument suggests that the plaintiff advanced an additional sum that was approximately twice the original advance and yet did so in circumstances without the benefit of those guarantees for the further advance or on one view for any of the money at all.

19 The second and third defendants appear as well to propound the contention that they were misled or relied upon representations made to them about the willingness of the plaintiff to continue to advance money to the first defendant in some unspecified way but to the effect that it would have provided sufficient funds to complete the project. The loan documentation contains what I might describe as the usual clause by which the second and third defendants acknowledge that in entering into the original documentation they did not do so in reliance upon any representations from the plaintiff of the sort they now seek to promote. Some clauses of the document also appear to exclude the right of the second and third defendants to raise certain defences to the plaintiff's claim but the enforceability of those clauses or clauses like them may well be the subject of some considerable debate.

20 Those clauses do not purport to exclude statutory defences such as those that might derive from the terms of the provisions of the Contracts Review Act1980. I hasten to observe however that none of the material upon which the second or third defendants appear to intend to rely suggests that either of the contracts or agreements into which they entered was unjust within the meaning of the Act at the time they were made.

21 It seems to me that the second and third defendants do not now have any reasonable prospect of being able to demonstrate the existence of a viable defence, so that if they were let in to defend, their position would in real terms remain unchanged. I note again that Mr Freeman of counsel was not briefed to appear before me to propound the merits of his clients' respective applications. Counsel for the plaintiff however opposed even the application for an adjournment upon the basis that it was futile. I agree. In the circumstances I have proceeded to deal with the matter on that basis.

22 In my opinion, for the reasons I have given, I consider that the following orders should be made:

1. The notice of motion filed by the second and third defendants on 16 October 2009 is dismissed.

2. I order the second and third defendants to pay the plaintiff's costs
of the motion.

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