Leasefin Corporation Limited v Clarke, Killmier and Shepherd File No. SCGRG 91/3043 Judgment No. 3660 Number of Pages 8 Guarantee and Indemnity Judgments and Orders

[1992] SASC 3660

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA FULL COURT King C.J.(2), Olsson (1) and Mullighan (3) JJ.

CWDS
Guarantee and indemnity - actions against surety - respondent lent company $200,000 - appellants entered into personal guarantees in favour of the respondent for the repayment of this loan and interest - company defaulted on repayments - guarantee binding on appellants.
Judgments and orders - in general - respondent applied for summary judgment against appellants under SCR 25.01 - Master gave summary judgment for principal sum of $200,000 - appellants sought to establish a fairly arguable defence on the merits of the claim - affidavit materials of appellants not sufficiently specific to establish a reasonably arguable defence - appeal dismissed.
Supreme Court Rules, Rules 25.01 and 25.03. Petersville Limited v Rosegrae Distributors Pty Ltd and Ors (1975) 11 SASR 433 and Brown Hutchinson Pty Ltd v DRB Investments Pty Ltd (Lunn M, 10 January 1989, unreported), applied.

HRNG ADELAIDE, 9 September 1992 #DATE 16:10:1992
Counsel for appellant Clarke:    Mr D. Howard
Solicitors:   Adams Kandelaars
Counsel for appellant Killmier: Mr D. Howard
Solicitors:   Adams Kandelaars
Counsel for appellant Shepherd: Mr D. Howard
Solicitors:   Adams Kandelaars
Counsel for respondent Leasefin Corporation Ltd:                 Mr R. Ross-Smith
Solicitors:   Thomson Simmons and Co.

ORDER
Appeal dismissed

JUDGE1 OLSSON J. This is an appeal against a judgment entered by a Master on 23 March 1992 in favour of the respondent against the appellants for a sum of $200,000; liberty having been reserved to the respondent to apply on the questions of interest and costs. That judgment was the end result of an application by the respondent for summary judgment pursuant to SCR 25.01. 2. On 20 December 1991 the respondent, as plaintiff, instituted proceedings against the three appellants claiming the amount of $280,630.60 plus further accrued interest and costs, being moneys said to be due by the appellants to the respondent pursuant to an instrument of guarantee executed by them in its favour. 3. The amount claimed represented $200,000 being principal moneys advanced by the respondent at the request of the appellants to a company known as Mark Wake Reporting (SA) Pty Ltd ("Mark Wake"), together with interest accrued in respect of that advance up until 26 September 1991. The summons issued by the respondent was endorsed to the effect that it was the intention of the respondent to seek an order for summary judgment for the relief set out in the statement of claim annexed to it, pursuant to SCR 25.01 and SCR 25.03. 4. The statement of claim filed pleaded, in considerable detail, the entry by the appellants on or about 27 April 1989 into a written Deed of Guarantee and Indemnity ("the Guarantee") in favour of the respondent. It further averred that the guarantee had been entered into by the appellants together with a company known as Commercial Equities Pty Ltd ("Commercial Equities"). 5. It was alleged that, pursuant to the guarantee, each guarantor jointly and severally guaranteed to the respondent the due and punctual payment by Mark Wake of all moneys secured by a Deed of Fixed Charge ("the Charge") over the reporting library of Mark Wake, and the due and punctual performance and observance by it of all obligations, terms and conditions, whether present, future or contingent, imposed upon Mark Wake by the Charge. Those obligations extended, it was pleaded, to the payment of interest as reserved by the Charge, together with all costs and expenses which might be incurred by the respondent in and about the enforcement or attempted enforcement of the guarantee. 6. The statement of claim further asserted that, on or about 27 April 1989, the respondent in fact advanced to Mark Wake the sum of $200,000 secured by the Charge. It was further said that Mark Wake breached the provisions of the Charge by failing to pay significant amounts of interest accruing due under it - as a consequence of which the respondent, pursuant to powers conferred upon it by the Guarantee in that regard, made demand upon the plaintiffs for payment of the moneys secured by the Charge, together with all interest which had accrued and was accruing in respect of it. This followed a formal demand made by the respondent upon Mark Wake on 26 September 1991, requiring payment forthwith both of the capital moneys secured by the Charge and the interest which had accrued due in respect of them. 7. Having served the proceedings upon the appellants, together with a collateral summons for summary judgment, the respondent set the matter down for hearing by a Master. The matter first came before a Master on 21 January 1992. 8. As at that date the respondent had caused an affidavit in support of the Rule 25.01 application to be sworn by its Manager (one Roberts) and served upon the appellants. That affidavit exhibited the various documents relied upon (including the Guarantee) and verified the default which had been committed by Mark Wake, the service of necessary formal demands on it, and the computation of moneys said to have accrued due to that point in time. 9. Due service upon the appellants of formal notices of demand pursuant to the Guarantee was separately proved by the affidavit of a licensed commercial agent sworn on 17 December 1991. 10. It is not apparent from the Appeal Book as to precisely when the documentation filed by the respondent in these proceedings was actually served upon the appellants. However, suffice it to say that, on the first return of the SCR 25.01 summons, the appellants appeared before the Master by their solicitor - who thereupon sought and obtained an adjournment of the hearing in order to obtain detailed instructions. 11. At that stage brief affidavits had been sworn by each defendant and filed in the action. Each affidavit was in similar terms and merely deposed that the appellant in question had a good and valid defence to the action on the merits, one of the grounds of that defence being that the respondent had not complied with the terms of and representations made by the respondent or its servants or agents in respect of the guarantee the subject of the claim. The proceedings again came before the Master on 24 January 1992. On that occasion the learned Master ordered that a full hearing of the application for summary judgment take place on 2 March 1992. He directed that each of the appellants file any further answering affidavit on or before 7 February 1992. He further directed that the respondent file any affidavit or affidavits in reply on or before 14 February 1992. 12. None of the appellants complied with the direction as to the filing of a further affidavit. Various requests were made by the solicitors for the respondent of the solicitors for the appellants, to ascertain their intentions in the matter. These met with little or no response. It was not until 26 February 1992 that one of the appellants (Shepherd) swore a detailed affidavit in response to that filed on behalf of the respondent. It is not clear from the material before the Full Court as to when this was actually filed and delivered to the solicitors for the respondent. Nor is it immediately apparent as to precisely what occurred when the matter was called on on 2 March 1992. As has already been said, the matter was ultimately disposed of on 23 March 1992 when, having heard counsel for the parties, the learned Master ordered the entry of judgment for the principal sum secured by the guarantee. 13. In his affidavit sworn on 26 February 1992, the appellant Shepherd deposed to the factual basis upon which the appellants relied and exhibited certain documentation in support of the assertions made. 14. At the hearing before the learned Master it immediately became apparent that various matters of narrative fact asserted in the affidavit filed on behalf of the respondent were not in dispute. The appellants conceded the execution by them of the relevant Guarantee, the execution by Mark Wake of the Charge, the due advancing of the sum of $200,000 by the respondent to Mark Wake, the defaults committed by that company under the Charge and the service of various notices and demands as averred by the respondent. 15. However, the appellants sought to establish the existence of a collateral factual situation, by virtue of which it was said that the appellants had a fairly arguable defence on the merits to the claim by the respondent against them. 16. In reviewing the affidavit sworn by Shepherd the first comment which must be made is that it is truly remarkable for what it does not say, rather than for what information of a specific nature it does provide. 17. As I understand the primary narrative facts sought to be established in the affidavit, they may be summarised in this fashion:-
    (1) Mark Wake was, at all material times, one of a group of
    companies collectively known as the Mark Wake Group of
    Companies. That Group was in the business of debt collection.
    Its activities extended to all of the Australian states, as well
    as the ACT and the Northern Territory.
    (2) In late 1988 and early 1989, the Mark Wake Group formulated
    a plan to expand its debt collection activities. This involved the
    acquisition by the Group of certain debtors' ledgers from various
    finance companies in relation to what were regarded as bad debts.
    It was proposed that the debtors' ledgers as to these bad debts be
    purchased at a substantial discount. The total plan, if
    implemented, envisaged that the Group would purchase debts totalling
    approximately $30 million for a consideration to the vendors of an
    amount slightly in excess of $3 million. The Group would then take
    action to recover as many of the bad debts as possible, thereby
    (hopefully) making a significant profit.
    (3) By December 1988 the Group had reached an advanced stage of
    negotiations to acquire debtors' ledgers as under:-
    Particulars   Book value     Purchase of Debts
    Price AGC Limited - Sydney     $12,000,000     $1,000,000
    AGC Limited - Brisbane         $9,000,000     $1,100,000
    AGC Limited - Melbourne         $6,000,000        $800,000
    Associated Midland Limited     $3,000,000        $250,000
    (4) An implementation of the scheme necessitated a substantial
    upgrading by the Mark Wake Group of its computer equipment and
    administrative systems to enable it to process recovery action of
    the bad debts purchased. The anticipated capital investment in the
    upgrading of computer equipment and administrative systems was
    approximately $200,000. It was that sum that ultimately formed the
    basis of the loan transaction the subject of the Charge.
    (5) It was asserted by Shepherd that it was an integral part of
    the overall scheme that the Mark Wake Group would secure an
    additional line of credit of $3 million to acquire the necessary
    debtors' ledgers for the considerations above indicated. In his
    affidavit the appellant Shepherd deposed that the scheme above
    outlined was discussed, on a number of occasions between November
    1988 and February 1989, by him with one Gutterson - who was said to
    be the managing director and a principal shareholder of the
    respondent. The respondent was understood to carry on the business
    of a finance company. 18. Shepherd deposed that, at the time of the negotiations, the Mark Wake Group, including Mark Wake itself, were wholly owned subsidiaries of Commercial Equities. The documentation placed before the learned Master indicated that each of the appellants was a director of Commercial Equities and, presumably, also a shareholder of it. 19. In the course of his affidavit the appellant Shepherd made the following bald assertion:-
    "By the 15th February 1989 the plaintiff through Gutterson
    had agreed to secure or provide the necessary line of credit of
    $3,000,000.00 on behalf of the Mark Wake Group in consideration
    of:-
    (i) Gutterson becoming a director of Commercial Equities;
    (ii) Gutterson or his nominee becoming a shareholder of
    Commercial Equities." 20. The document did not ever descend into any detail as to the manner in which the alleged agreement had been arrived at, where and by whom it was consummated, who were the parties to it, its detailed terms and in what manner (if at all) it had been evidenced. However, certain factual circumstances relevant to the alleged circumstances are readily extractable from the documentation exhibited to the affidavit. 21. First, the copy minutes of Board meetings of Commercial Equities placed before the learned Master indicate that, at a meeting of the directors of Commercial Equities held on 15 February 1989, Gutterson was appointed as a director of that company. It was resolved that approval be given to the issue to Lynold Pty Ltd (a company in which Gutterson was director and shareholder) of a substantial number of shares in Commercial Equities, subject to the requisite written application being received in due form. 22. Secondly, it was resolved at the same meeting that Gutterson be authorised to negotiate with Beneficial Finance Corporation Pty Ltd initially (and subsequently any other appropriate source) for a line of credit for a debt buy-out facility, but, initially, with specific reference to the approximately $1.1 million needed to fund the acquisition of the AGC bad debtors' ledger in Brisbane. The minute records that:- "It is envisaged that a line of credit of $3 million is required in order to establish ledgers in each state." 23. Thirdly, at a subsequent meeting of the directors of Commercial Equities, held on 27 April 1989, the previous minute related to the potential issue of shares to Lynold Pty Ltd was rescinded and replaced by another resolution which authorised a rather different number of shares to be issued to Lynold Pty Ltd at a price of 50 cents per share, of which 5 cents was to be payable on allotment. The balance was to be payable in full within two years of application without interest. 24. The minutes for that meeting do not appear to be complete. However, they do also contain two significant entries. 25. The first was to this effect:-
    "LEASEFIN Arrangements had been made for Leasefin CORPORATION to
    advance $200,000 to the Mark Wake PTY LTD: group against fixed
    charge over the reporting library supported by a guarantee from
    Commercial Equities Pty Ltd and the personal guarantees of the
    directors. Mr Des Gutterson reiterated his declaration of interest
    as a director and shareholder of Leasefin Corporation Ltd and
    advised that he would not be a guarantor because of his position as
    a director of each of the party companies, and he would also refrain
    from voting on the relevant motions - Resolved that -
    1. The $200,000 be borrowed from Leasefin Corporation upon and
    subject to the terms and conditions set out in the pertinent
    document.
    2. That the appropriate document being specifically a
    supporting guarantee be executed under the seal of the company." 26. The second minute reads as follows:-
    "VOTE OF The meeting recorded a vote of THANKS: appreciation to
    Des Gutterson and Des responded that he had treated the matter
    as a stand alone/commercial operation standing on its own
merits." 27. It is clear that Lynold Pty Ltd did in fact apply for the shares authorised to be issued by the minute of 27 April 1989, and that these shares were thereupon issued to it. Some additional shares were also transferred into Gutterson's name from another member of Commercial Equities for no consideration. 28. Shepherd asserted that the appellants executed the relevant guarantee envisaged by the minute of 27 April 1989 "in consideration of the promised funding by the plaintiff, or alternatively, on the basis of the representation that such funding would be made available". He went on to depose:- "In breach of the said agreement the plaintiff failed and/or refused to secure or provide the promised line of credit of $3,000,000.00 for the purpose of purchasing the said debtors' ledgers." 29. He further deposed that it was the contention of the appellants that, in the alternative, the representation that the plaintiff would secure or provide an additional line of credit of $3 million for the purpose of acquiring the debtors' ledgers proved false. He said that the failure or refusal to secure or provide the line of credit of $3 million led to the financial collapse of the Mark Wake Group. 30. As I have recited, the appellants have nowhere descended to any detail as to the precise agreement alleged to have been come to with the respondent, through Gutterson, to secure or provide the line of credit of $3 million as asserted in the affidavit. For present purposes it is a vital consideration as to whether any legally binding agreement was ever consummated, the circumstances in which any such agreement was come to, and whether the respondent was a party to that agreement. 31. Critically it has simply not been demonstrated that there is any evidence that the respondent specifically would provide or facilitate the procurement of any relevant line of credit nor is there any material, other than a bald assertion in the terms above set out, that the respondent entered into the $200,000 loan transaction as part and parcel of some wider transaction to which it was a party or by which it was bound. On the contrary, the minutes of Commercial Equities, obviously prepared under the direction of the appellants, render it quite clear that the loan transaction, the subject of the guarantee, was a stand alone commercial transaction related to the financing of upgraded computer support and administrative systems, entered into on its own merits and not dependent upon any other transaction. Thus the very evidentiary material produced by the appellants themselves stands in direct contradiction of the point which they now seek to make. 32. Moreover, quite apart from the fact that the minutes exhibited by the appellant speak only of projected negotiations rather than any firm obligation to secure or provide the proposed line of credit, there is not a scintilla of evidence upon which it may fairly be asserted that the respondent in particular bound itself to do so. On the contrary, the only material placed before the learned Master indicated that, at best, Gutterson, who happened to be a principal of the respondent, was entering into negotiations on behalf of Commercial Equities; and not in his capacity as a director of the respondent. Equally, the minutes are actually quite inconsistent with any suggestion that the respondent itself had agreed to provide the relevant line of credit. 33. It is well settled that, in the context of an application for summary judgment pursuant to SCR 25.01, once it appears that, as here, an applicant plaintiff has made out a strong prima facie case for relief, a defendant will only be given leave to defend where it has, in an acceptable manner, discharged its onus of proof of demonstrating that there is a triable issue by way of defence to the plaintiff's claim. (See discussion in Settlement Wine Co Pty Ltd v National and General Insurance Co Ltd (1988) 146 LSJS 150 - albeit that that case primarily focused upon an application for immediate relief pursuant to SCR 25.02.) 34. It is specifically envisaged by sub-paragraph (c) of SCR 25.01 that the defendant's affidavit must not only depose to the existence of a good defence to the action on the merits, but must also specify the grounds of such defence. 35. Moreover, as appears from the discussion in Petersville Limited v Rosgrae Distributors Pty Ltd and Ors (1975) 11 SASR 433, a defendant must, in his affidavit of merits, condescend to reasonable particulars of the basis of the alleged ground of defence. It is certainly not sufficient merely to make a bald assertion that a broad ground of defence exists. 36. The whole concept of the summary judgment procedure is that, once it appears that a plaintiff has a strong prima facie basis for seeking relief, a defendant must, with reasonable particularity, clearly and unequivocally demonstrate that there is a ground of defence which is more than ephemeral and is patently clearly arguable. 37. It seems to me with respect that, in reasons for decision published in Brown Hutchinson Pty Ltd v DKB Investments Pty Ltd (Lunn M, 10 January 1989, unreported), Master Lunn (as he then was) succinctly encapsulated the approach proper to be adopted in these terms:-

    "There is an onus on the plaintiff on the balance of
    probabilities on the whole of the evidence before the Court to show
    that it is entitled to the relief which it seeks. In considering
    whether the plaintiff has discharged that onus the Court must look
    at whether the defendant by its affidavits has deposed to a good
    defence to the action on the merits and has sufficiently specified
    the grounds of such defence. If the alleged defences and their
    grounds, to use the words of White J, are not sufficiently cogent to
    show that the defendant is not raising them merely in order to waste
    the Court's time and abuse the Court's measured procedures in order
    to delay or defeat a just claim by the plaintiff, or in the words of
    von Doussa J, 'are patently unmeritorious' and are only raised with
    the object of delaying judgment, then summary judgment should be
    entered if it is otherwise justified on the plaintiff's
affidavits." 38. In my view that dictum accurately reflects the concepts enunciated in cases such as Lawrence v Griffiths and Anor (1987) 47 SASR 455 and Grimwade and Ors v Beresford (1974) 9 SASR 157. As Walters J. pointed out in the latter case (at p160):-
    "To enable a defendant successfully to resist an application
    under the Order, sufficient facts and particulars must be given to
    show that there is really a bona fide defence (Wallingford v Mutual
Society (1880) 5 App Cas 685). It is not enough merely to deny the
    debt, to allege fraud or misrepresentation, or to state a legal
    objection. On the other hand, the defence sought to be set up need
    only show that there are facts which may constitute a plausible
    defence and which demonstrate there is a triable issue to be
    decided. Generally speaking, leave to defend ought to be given
    unless there is patently no defence in law and no possibility of a
    real defence on questions of fact ..." 39. I also agree with Master Lunn when, in the Brown Hutchison Case, he went on to say:-
    "While a defendant is not required to set out all of the
    facts upon which it will seek to establish its defences at trial,
    sufficient must be stated about them so that the Court can be
    satisfied in the circumstances of the case that the alleged defences
    are not spurious. What degree of particularity is required will
    probably depend upon the circumstances of the case and the extent to
    which the defendant's bona fides might be impeached on other
    grounds. However, clearly a defendant can not claim that there is a
    defence behind a smoke screen of its own creation or expect the
    Court to act on its own assertion that it might exist." 40. Upon a careful study of the material in the case at bar, it is clear beyond doubt that the material put forward on behalf of the appellants falls far short of discharging the onus resting upon them. Indeed, it seems to me that, having regard to all of the relevant circumstances, the learned Master was well justified in concluding that any defence sought to be put up is either illusory or simply put forward as a delaying tactic. 41. I would unhesitatingly dismiss this appeal.

JUDGE2 KING C.J. I concur.

JUDGE3 MULLIGHAN J. I concur.