National Australia Bank Limited v Nicholson
[2005] VSC 391
•30 September 2005
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 5207 of 2004
| NATIONAL AUSTRALIA BANK LIMITED | Plaintiff |
| v | |
| RUSSELL NICHOLSON | Defendant |
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JUDGE: | WILLIAMS J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 1, 5, 6, 7 September 2005 | |
DATE OF JUDGMENT: | 30 September 2005 | |
CASE MAY BE CITED AS: | National Australia Bank Ltd v Nicholson | |
MEDIUM NEUTRAL CITATION: | [2005] VSC 391 | |
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Guarantee – Whether guarantor induced to execute guarantee by misrepresentation.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Ms G Schoff | Russell Kennedy |
| For the Defendant | Mr G Parncutt | Kiatos & Co |
HER HONOUR:
The claim
By the statement of claim served with a writ filed on 29 March 2004, the plaintiff (“the Bank”) seeks of the sum of $321,636.52, allegedly owing under a written guarantee dated 2 February 2000 (“the guarantee”) executed by the defendant (“Mr Nicholson”). The sum claimed is alleged to be the amount due as at 10 March 2004.
Mr Nicholson defends the claim, on the ground that he was induced to execute the guarantee by a misrepresentation allegedly made by the Bank’s officer, Mr Brett Collins. Mr Nicholson alleges that Mr Collins misrepresented to him, in effect, that he would not remain liable under the guarantee, once he ceased to be a director of the principal debtor, Pasco Aluminium Fabricators Pty Ltd (“Pasco”).
Mr Nicholson’s legal representation
Through his solicitor, Mr Nicholson filed a defence and counterclaim which was signed by counsel and dated 15 June 2004. He was represented until 17 February 2005 when his solicitor withdrew from the record. Mr Nicholson’s present solicitors filed a notice that they were acting for him in the proceeding dated 26 August 2005. They represented Mr Nicholson at the trial which ran between 1 and 7 September 2005. These details are relevant to the central issue in the case: as to the credit of Mr Nicholson and the witnesses called by him.
Findings
I am satisfied on the balance of probabilities of the following facts and legal conclusions.
(a)Mr Nicholson and Mr James Pashos (“Mr Pashos”) were, at relevant times, directors of Pasco, which carried on a business of manufacturing and installing aluminium window frames and doors.
(b) Pasco was a customer of the Bank.
(c)Mr Nicholson and Mr Pashos were also directors of Nicpash Aluminium Services Pty Ltd (“Nicpash”), which provided management and services to Pasco, and of an investment company, Princess Street Pty Ltd (“Princess Street”).
(d)Mr Nicholson, Mr Pashos, Nicpash and Princess Street, as guarantors, executed a written guarantee in favour of the Bank, dated 18 June 1999 (“the 1999 guarantee”).
(e)Under the terms of the 1999 guarantee the guarantors agreed to pay those amounts which Pasco owed to the Bank, up to an amount of $306,000, interest and other additional specified amounts.
(f)The 1999 guarantee secured Pasco’s liability in relation to an overdraft, the limit of which had been temporarily increased to $150,000, as well as its liability in relation to an instalment loan of $150,000.
(g)By January 2000, Pasco’s then $50,000 overdraft limit had been exceeded, by some $100,000, and it once again sought from the Bank a temporary increased limit of $150,000.
(h)Mr Collins prepared, or had prepared, the necessary documents which included:
(i)a “Business Credit Submission”, seeking internal approval of the proposed increase for the period to 31 March 2000 and describing the securities to be supplied which relevantly included a “Guarantee & Indemnity $306,000 given by James Pashos, Russell Nicholson, Nicpash Aluminium Services P/L atft Nicpash Aluminium Services Trading Trust & Princess St P/L atft Princess Street Unit Trust“; and
(ii)a “Standard Credit Memorandum – Business”, dated 28 January 2000, in relation to the approval of the increase, stating that the Pasco group of companies’ facilities would be reviewed in March 2000, when the Bank would seek to “incorporate directors (sic) properties into the security arrangements”, and noting that guarantees by directors and associated companies were held by the Bank.
(i)The Credit Memorandum was endorsed by the Bank’s Regional Business Manager on 28 January 2000, approving the increase sought.
(j)Mr Collins asked his assistant, Ms Catherine Bell (who was known as Mrs Peace at the time of the trial), to arrange for the necessary documents to be drawn up.
(k)On 29 January 2000, Mr Collins was married and commenced three weeks leave.
(l)Mrs Peace attended at Pasco’s premises on 2 February 2000, taking with her the guarantee and a letter to Mr Pashos and Mr Nicholson, advising them of the increased limit of $150,000 for the renewed overdraft facility to 31 March 2000 and enclosing an “Overdraft Facility Approval Advice” dated the same date.
(m)Mr Nicholson and Mr Pashos executed the guarantee on 2 February 2000, as guarantors and as directors of each of the other two guarantors, Princess Street and Nicpash, in the presence of Mrs Peace, who signed as Catherine Bell.
(n) Mr Collins was not present when the guarantee was signed.
(o)Later in the year, in about September 2000, the Bank approved new facilities for Pasco, on condition that the directors and their family trust companies provide guarantees as security for payment of the sum of $502,000.
(p)On 28 September 2000, Mr Collins left a guarantee document with Mr Nicholson and Mr Pashos for signature.
(q)Mr Nicholson refused to sign a guarantee referring to his family trust, explaining to Mr Collins that he would not do so because he could not promise that Pasco could meet its cash flow commitments and he could not control the position of the companies with which it was dealing.
(r) Mr Nicholson left the Pasco business in about October 2000.
(s)Mr Collins had made a file note, dated 3 October 2000, in relation to the Pasco account, recording his understanding that Mr Pashos had found a prospective investor in the company who would take over Mr Nicholson’s shares and sign the guarantee and indemnity at which Mr Nicholson had baulked.
(t)ASIC records reveal that Mr Nicholson ceased being a director of the company on 30 November 2000.
(u)Mr Collins left the Bank in May 2001, at a time at which Pasco was still trading.
(v)As at 3 March 2004, Pasco owed the Bank the sum of $142,659.84 under the instalment loan agreement, as well as the sum of $178,096.29, in relation to the overdraft facility, and it was in default under the contracts in relation to each of the loan and the overdraft facility.
(w)The Bank issued demands, dated 3 March 2004, to Mr Nicholson, Pasco and to Mr J. P. Downey, as Pasco’s liquidator, for payment of the amounts owing under the loan account and the overdraft facility.
(x) The demands were not met.
(y)The Bank served a written demand, dated 10 March 2004, under the guarantee, upon Mr Nicholson, seeking payment of the sum of $321,636.52, being the base amount of $306,000 secured by the guarantee, plus interest and costs.
(z)The demand was not met and the amount owing by Mr Nicholson under the guarantee remains outstanding.
The quantum of the debt under the guarantee
Clause 22.1 of the guarantee provides for the Bank to give Mr Nicholson a certificate setting out the amount owed by Pasco and the amount due under the guarantee. Clause 22.2 then provides:
“22.2 To the full extent permitted by law the certificate is sufficient evidence of the accuracy of its contents.”
The fact of the debt and its quantum may be conclusively proved by such a certificate[1]. The Bank did rely upon a certificate provided to Mr Nicholson under clause 22.1 (“the certificate”), as proof of the debt. The certificate was prepared by Mr Darren Oats, the Bank’s manager responsible for Pasco’s accounts. The Bank adduced evidence from Mr Oats as to Mr Nicholson’s indebtedness and as to the quantum of his debt under the guarantee. His evidence was given, according to counsel for the Bank, because the issue of the quantum of Paso’s debt had appeared to have been raised in defence of the claim. Indeed, although the service of the demands and Mr Nicholson’s failure to pay any of the monies claimed by the Bank were admitted, counsel for Mr Nicholson did submit, at one point, that the Bank had failed to conclusively prove the quantum of Pasco’s indebtedness by the certificate, because the debt had been written off in one set of its accounts and treated as a bad debt, accumulating interest at a penalty rate, in another. However, the submission was not ultimately pursued.
[1]See: Dobbs v National Bank of Australasia Ltd.(1935) 53 CLR 643 at 650-4, particularly at 651 per Rich, Dixon, Evatt and McTiernan, JJ.
Mr Oats prepared the certificate on the basis of the accounts produced by the Bank’s computer system and provided to him by the Bank’s legal department. He verified the accounts, checking the calculations made. He accepted that the interest rate shown in the accounts was accurate, in so far as it was based upon the Bank’s Benchmark Rate at any point in time. He had not independently ascertained the Bank’s Benchmark Rate, but there was no evidence to suggest that the amount relied upon was inaccurate. The certificate set out Mr Oats’ calculation of Mr Nicholson’s liability, as at 10 March 2004, in accordance with clauses 6, 7 and 8 of the guarantee, as follows:
“Basic Liability: | |
| 1. Principal payable by the company: | $306,000.00 |
| 2. Interest accrued and unpaid by the company from 11 March 2003 to 10 March 2004 [the date of the demand under the guarantee]: | $15,256.52 |
| 3. Bank fees, costs, charges, expenses and taxes accrued and unpaid by [Pasco] from 11 March 2003 to 10 March 2004: | $280.00 |
| 4. Costs of [Pasco] breaking any fixed rate facility: | $ 0.00 |
Additional Liability: | |
| 5. Costs, expenses, taxes and Bank fees payable under the Guarantee: | $100.00 |
| 6. Interest payable on other monies payable under the Guarantee: | $0.00 |
| 7. Amounts in connection with foreign currency adjustments payable: | $0 |
Total | $321,636.52.” |
There was no evidence casting any doubt upon the accuracy of the Bank’s computer records or the calculations made by Mr Oats. Accordingly, I am satisfied by his evidence that $321,636.52 was owing by Mr Nicholson under the guarantee, as at 10 March 2004.
The defence of misrepresentation
The defence and counterclaim, filed on 15 July 2004, alleges that, during a conversation in February 2000, Mr Collins represented to Mr Nicholson “that his name would be removed from the guarantee document in the event that [he] left the company”. Acting in reliance upon the alleged representation, Mr Nicholson is alleged to have signed the guarantee.
The representation was characterised as false, and Mr Collins’ conduct in making it was said to have been misleading and deceptive. In the circumstances, the Bank was alleged to be estopped from enforcing the guarantee and to have acted unconscionably in commencing the proceeding. Mr Nicholson sought relief for breach of s 52 of the Trade Practices Act 1974 (Cth).
The allegations against the Bank were denied in its reply and defence to counterclaim filed on 13 July 2004.
Outlines of evidence, dated 30 August 2005, were filed on behalf of Mr Nicholson by his current solicitors who, as noted earlier, had filed a notice that they were acting as his solicitors on the previous day. The outlines were of the evidence of Mr Nicholson himself, Mr Pashos and Ms Sarah Burns, who had been Pasco’s office manager at the relevant time.
The outlines stated that Mr Nicholson and Ms Burns would give evidence to the effect that Mr Nicholson had refused to sign the guarantee, until he was reassured by Mr Collins that he would be given a document releasing him from liability after he had resigned from the company. Mr Nicholson’s outline stated that he was asked to sign the guarantee in January 2000. Ms Burns’ outline foreshadowed evidence “of the circumstances of the signing of the guarantee” to the effect that Mr Nicholson actually signed the guarantee, after being told that he would be given a document of the type sought. Mr Nicholson’s outline did not go so far in express terms. Ms Burns’ outline did not state the date of the assurance given to Mr Nicholson.
The outline of Mr Pashos’s evidence stated that it was expected that he would say, in relation to “the circumstances of the signing of the guarantee,” that Mr Collins agreed to release Mr Nicholson from liability upon his resignation from Pasco, saying words “to the effect that the NAB would release him from liability after his resignation from the company and, provided that he signed the Guarantee, he would give him a document to that effect”.
Mr Nicholson’s recollection
The Bank called Mr Collins as its first witness. After he had given evidence on the first day of the trial, including evidence that he had been away on his honeymoon on 2 February 2000, the date of the guarantee, he was excused. Mr Oats gave his evidence next.
Counsel for Mr Nicholson then made an application for Mr Collins to be recalled for further cross-examination. In support of the application, Mr Nicholson relied upon an affidavit, sworn on 2 September 2005, in which he deposed to having been present whilst Mr Collins was giving evidence and to having then recalled that he signed the guarantee in front of Mrs Peace, rather than Mr Collins, as he had previously believed and had instructed his solicitors.
Mr Nicholson also deposed to having recollected that the representation was in fact made to him by Mr Collins at another meeting, which had taken place “a week or so prior to the signing of the Guarantee” at Pasco’s offices. The meeting had been arranged for the purpose of introducing Mrs Peace to Pasco’s directors, “as Mr Collins had told one or other of [them] that Mr Collins would be unavailable for approximately two weeks and it was necessary to sign a new guarantee and indemnity”. Somewhat confusingly, Mr Nicholson then went on to depose that Mr Collins then presented him with a guarantee and indemnity for signature, which Mr Nicholson refused to sign “as [he] explained to Mr Collins that there was no point in signing it as [he] was leaving Pasco”. After being allegedly told to sign the document because Pasco had overextended itself and the Bank would not authorise any more payments on its account, Mr Nicholson agreed to sign, only after being “assured that [he] would be given a document releasing [him] from liability after [he] had resigned from the company”. Mr Nicholson then read the document and noticed a reference to a guarantee being provided by Samtiff Pty Ltd (“Samtiff”), the trustee of a trust set up for the benefit of his children. Mr Nicholson deposed that he then said words to Mr Collins “to the effect that even if he were to ‘put a gun to [his] head’, [he] would not sign the document”. Mr Collins allegedly then told Mr Nicholson that a new guarantee would have to be prepared, without the name of the trustee, because the document could not be amended by any handwritten alteration. He advised Mr Nicholson that Mrs Peace would come to the office during the following week, with a new guarantee to be signed.
Mr Nicholson deposed that he signed the guarantee on or about 2 February 2000, in accordance with his agreement with Mr Collins, when Mrs Peace attended at Pasco’s office with a guarantee document which omitted the reference to the family trust.
The application was successful and Mr Collins was recalled for further cross-examination.
Mr Collins’ further examination
Counsel for Mr Nicholson then asked Mr Collins a series of questions as to whether he recollected events, including:
(a)a meeting, at Pasco’s offices, a week or so before the guarantee was signed on 2 February 2000;
(b) Mr Collins introducing Mrs Peace to Pasco’s directors at that time;
(c)Mr Nicholson refusing to sign a guarantee in January 2000, in the absence of a document assuring him that he would be released from liability after leaving Pasco; and;
(d)Mr Collins seeking a guarantee from Samtiff in relation to Pasco’s liability in January 2000.
Mr Collins said that he had no such recollections. He also said that he did recall Samtiff being required to provide a guarantee in about August or September of 2000. In relation to the amendment of documents, Mr Collins said that, if the subject matter were within his authority, a document could be amended by hand and the alterations initialled. If approval were required, the matter would be referred for that approval and a fresh document would be required.
Under further re-examination, Mr Collins said that he had no authority, in January 2000, to remove the name of a guarantor from a guarantee and that he would have been required to obtain approval, necessitating an internal memorandum to his “crediting authority” within the Bank. He denied that, in January 2000, he went to Mr Nicholson with a document providing for a guarantee from Samtiff. He said, in effect, that, if there had been any such document as the alleged guarantee including the name of Samtiff, there would have been, on the Bank’s file, documents such as a Business Credit Submission and the Credit Memorandum. Further, if there had been some unusual incident, such as that alleged involving Mr Nicholson refusing to sign the guarantee document produced to him, it would have been noted on the Bank’s file. He said that he had seen no such documents. (I note that a call was made for production of Mr Collins’ diary for the relevant time and counsel for the Bank responded that, despite searches having been made, the Bank was unable to locate and produce the diary.)
The amended outlines of evidence
Amended outlines of the evidence of Mr Pashos and Ms Burns were filed, to replace those already described.
Ms Burns’ amended outline foreshadowed evidence that she was not present at the signing of the guarantee, but did attend a meeting in late January 2000 at which Mr Nicholson initially refused to sign a guarantee, because he was leaving the company and resigning as a director. After being told by Mr Collins that he would be given a document stating that he would not be liable after ceasing to be a director, Mr Nicholson had read the guarantee and again refused to sign because “it included his family trust”. Upon being further told by Mr Collins that he “had to have something to take back to the Bank on the understanding that it was not the final document” Mr Nicholson had signed the guarantee and told Mrs Peace ”that she was a witness to the agreement”.
Mr Pashos’s amended outline stated that he would give evidence of a meeting, in January 2000, at which he and Mr Nicholson were handed guarantees to sign. He would say that it was he who noticed the inclusion of the names of the directors’ family trust companies as guarantors and that Mr Nicholson became extremely agitated and upset as a result and made a comment, in words to the effect of “you might as well put a gun to my head. I am not going to sign this”. Mr Pashos would then say that Mr Nicholson told Mr Collins that there was no use in him signing a guarantee because he intended to leave the company. Mr Collins then told Mr Nicholson that “there was a possibility that the Bank could release Russell from guarantees upon his resigning as a director and relinquishing his shares.”
Mr Pashos’s outline does not state whether or not he would say that he and Mr Nicholson signed the guarantees, but does refer to Mr Collins requiring the directors to sign the document, notwithstanding their arguments to the effect that they would only sign if a line was struck through the reference to the trusts as guarantors. It goes on to state that Mr Pashos would say that they were told that fresh guarantee documents would be produced which did not refer to the family trusts.
The examination of Mrs Peace
The Bank then called Mrs Peace, the witness to Mr Nicholson’s signature on the guarantee. In my opinion, her account of events accorded with that given by Mr Collins.
Under cross-examination by counsel for Mr Nicholson, Mrs Peace was asked whether she recollected the alleged events in January 2000. Alternatively, it was put to her that she did not recall them. She responded either by saying that she could not recall the events or by agreeing that she did not recall them. She said, however, that if there had been a conversation in which Mr Nicholson allegedly referred to a gun being put to his head, she would have recollected it. She was also asked whether she was in a position to deny that the alleged events, which she did not recall, had taken place. Understandably, in the circumstances, she said that she was not in a position to do so.
In re-examination, Mrs Peace explained her failure to recollect on the basis that she was not present at the alleged meeting. She also said that the Bank would not produce a guarantee document, until there was a letter and a memorandum of approval of the type she had brought with her to Pasco’s premises on 2 February 2000.
The defence witnesses
Mr Nicholson and Ms Burns gave evidence about a meeting in January 2000, at Pasco’s premises, attended by each of them, as well as by Mr Pashos, Mr Collins and Mrs Peace. At the meeting they said in effect that Mr Collins had told Mr Nicholson that he would be released from liability under the guarantee, if and when he ceased to be a director of Pasco.
Whilst Mr Pashos gave evidence that there had been such a meeting in January 2000, I found his evidence unpersuasive, because he also appeared to suggest that the meeting may have occurred later in the year: a couple of months before Mr Nicholson left the company. I also note that, in any event, Mr Pashos’s evidence, as to Mr Collins, in effect, telling Mr Nicholson that he might possibly be able to have him removed as a guarantor, was not entirely consistent with Mr Nicholson’s account of the nature of the alleged misrepresentation.
Ms Burns’ evidence generally accorded with her amended outline, although she added that the guarantee presented to Mr Nicholson also referred to Mr Pashos’s family trust company, Tonna Pty Ltd, and that Mr Pashos had also refused to sign the document until the name was struck out by Mr Collins. Mr Pashos himself did not give evidence that he refused to sign a guarantee containing a reference to Tonna Pty Ltd, although he did say that the guarantee produced by Mr Collins at a meeting in January 2000 did refer to Samtiff and Tonna and that Mr Nicholson had refused to sign.
The credibility of the witnesses
I generally found the evidence of each of the defence witnesses to be most unconvincing. I was not persuaded by Mr Nicholson’s evidence as to his late recollection that there was a meeting in January 2000 at which Mr Collins made a representation to the alleged effect. I found his account of events to be improbable. Further, in my view, it differed in significant respects from that described in the allegations in the defence and counterclaim. I note, in this regard, that Mr Nicholson was represented when the defence and counterclaim was drawn by counsel. He was also represented by the one firm of solicitors both when the initial witness statements and the amended versions were prepared.
Mr Nicholson appeared evasive under cross-examination and to be trying to tailor his evidence to suit his account of events. Mr Pashos’s evidence on significant matters was not always internally consistent and its effect was diminished by his repeated reference to his difficulty in remembering the dates of events. I agree with the submissions of counsel for the Bank to the effect that Ms Burns gave her detailed evidence in relation to events alleged to have occurred more than five years ago in a manner which suggested that her account had been rehearsed.
On the other hand, I accept the account of events given by Mr Collins and Mrs Peace, each of whom I found to be a credible witness, prepared to frankly admit their occasional respective inability to recall the details of events. Counsel for Mr Nicholson sought to rely upon what he submitted was an extraordinary failure to recollect by each of them. However, I am persuaded that no significance should be attributed to the absence of recollection, in the circumstances. As was pointed out by counsel for the Bank, the Bank’s witnesses were generally cross-examined as to the extent of their recollections, rather than being asked whether they accepted or denied that the alleged events occurred and being provided with the opportunity to respond accordingly. I note that I am not dissuaded from my conclusions as to the reliability of the Bank’s witnesses by its failure to produce Mr Collins’ diary.
Further, I consider particularly significant Mr Collins’ evidence that the preparation of any guarantee including Samtiff and Tonna as guarantors would have been preceded by a number of internally documented steps. There was no evidence of any documents drawn up in about January 2000, of the type in evidence relating to the guarantee itself.
Conclusion
Mr Nicholson has not satisfied me that the alleged representation by Mr Collins was made to him at any meeting in or about January 2000, or at all.
The Bank has proved its claim. I will hear the parties as to the terms of the orders and in relation to costs.
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