National Australia Bank Limited v Zaza
[2009] WASC 314
•3 NOVEMBER 2009
NATIONAL AUSTRALIA BANK LIMITED -v- ZAZA [2009] WASC 314
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2009] WASC 314 | |
| Case No: | CIV:2229/2009 | 22 OCTOBER 2009 | |
| Coram: | MASTER SANDERSON | 3/11/09 | |
| 7 | Judgment Part: | 1 of 1 | |
| Result: | Judgment entered for plaintiff | ||
| B | |||
| PDF Version |
| Parties: | NATIONAL AUSTRALIA BANK LIMITED SERGIO EDWARD ZAZA |
Catchwords: | Summary judgment Whether defence of equitable set off available to guarantor Turns on own facts |
Legislation: | Nil |
Case References: | GE Capital Australia v Davis [2002] NSWSC 1146 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
SERGIO EDWARD ZAZA
Defendant
Catchwords:
Summary judgment - Whether defence of equitable set off available to guarantor - Turns on own facts
Legislation:
Nil
Result:
Judgment entered for plaintiff
(Page 2)
Category: B
Representation:
Counsel:
Plaintiff : Mr S K Dharmananda
Defendant : Mr G A Rabe
Solicitors:
Plaintiff : Clayton Utz
Defendant : Stables Scott
Case(s) referred to in judgment(s):
GE Capital Australia v Davis [2002] NSWSC 1146
(Page 3)
1 MASTER SANDERSON: This was the plaintiff's application for summary judgment. At the conclusion of the hearing I indicated that I would grant judgment substantially in terms of the amended chamber summons filed 7 October 2009. I indicated that I would publish reasons for this decision. These are those reasons.
2 The plaintiff's application is supported by an affidavit of Sonjka Kathleen Spiro sworn 17 August 2009. In opposition to the application the defendant sought to rely on two affidavits sworn by him, the first on 29 September 2009, the second on 19 October 2009. Counsel for the plaintiff objected to reliance being placed on the second of these two affidavits. He pointed out that the affidavit was filed without leave and well after the time limited for the defendant to file any affidavit. Further, counsel sought to strike out parts of both affidavits. Before dealing with the admissibility of the second affidavit and the application to strike out parts of each affidavit I should briefly outline the facts as they emerge from the statement of claim.
3 The defendant was appointed as a director of Zaza Nominees Pty Ltd on 25 July 2002. He is the son of Sergio Zaza who throughout the statement of claim is referred to as 'Zaza Snr'. The plaintiff alleges that on or about 24 June 2002 it entered into an agreement with the defendant and Zaza Snr to provide a loan facility of $600,000. This loan is referred to in the pleadings as 'FlexiPlus Mortgage Facility'. It is pleaded that on or about 9 June 2009 the plaintiff demanded repayment from the defendant of the FlexiPlus Mortgage Facility. It is said that the demand has not been complied with and the defendant is consequently indebted to the plaintiff in an amount of $714,549.40.
4 It is then pleaded the plaintiff extended further finance facilities to Zaza Nominees. These were a market rate facility, a bill facility, and a business mortgage overdraft. In relation to each of these finance packages it is said that money is due from Zaza Nominees to the plaintiff and, despite demand, it has not been paid.
5 It is then said, effectively, that the defendant guaranteed all of the loans made by the plaintiff to Zaza Nominees. There were four guarantees executed by the defendant in favour of the plaintiff between 26 March 2002 and 25 November 2002. Relevantly however, there was a further guarantee and indemnity executed on 26 May 2006 by the defendant in favour of the plaintiff, which subsumed these earlier guarantees. The last guarantee is referred to as the 'Guarantee Document'. When the plaintiff was not paid by Zaza Nominees, demand was issued
(Page 4)
- against the defendant by the plaintiff pursuant to the Guarantee Document. It is common ground the defendant has not made payment to the plaintiff. Effectively then, the plaintiff is suing the defendant based upon the Guarantee Document.
6 Turning then to the affidavits; during the course of the hearing I advised the parties that I would admit into evidence the defendant's second affidavit. The intention of the affidavit is to clarify certain matters raised by the defendant in his first affidavit. Nothing in the second affidavit is contentious - if anything, it narrows the area of dispute between the parties. That being so, while it was filed late and out of time, I was satisfied it should be admitted into evidence.
7 In his first affidavit the defendant says Zaza Nominees was a company engaged in the crayfishing industry. The assets of the company included licences to fish a certain number of cray pots. In or about October 2006, when Zaza Nominees was in default under several of the finance facilities provided by the plaintiff, the plaintiff effectively took possession of the fishing licences. The defendant says that the plaintiff then refused permission to Zaza Nominees to use these licences for the purposes of fishing. But it did not immediately sell the licences. Indeed, they were not sold until November 2008. It is the defendant's position that had the licences been sold in October 2006, or soon after, they would have recovered considerably more than when they were sold in December 2008. In par 17 of his first affidavit the defendant puts the position this way:
Had all the B and C Zone craypots been sold in or about October of 2006, the plaintiff would have recovered sufficient monies from the sale proceeds thereof to clear the entire debt as at 2006 which is the subject of these proceedings plus the accrued interest thereon.
8 The objections of the plaintiff really fall into two categories. The nature of the first category can be illustrated by quoting par 8 of the defendant's first affidavit:
In or about October 2006, having regard to the precarious financial circumstances of the Company and of my father known to the plaintiff at that time, the plaintiff asserted its rights against the Company and my father under its securities in relation to the B Zone and C Zone cray pots as set out in the Business Letter of Offer on page 142 of Spiro's Affidavit.
9 The plaintiff says this paragraph ought be struck out on the grounds of 'relevance, vague, without detail as to "precarious financial circumstances of the company and my father"'. In my view, there is
(Page 5)
- nothing objectionable about that paragraph. It may be that the nature of 'precarious' is not explained. However, the fact is the company was in financial difficulty - if it was not the plaintiff would not have acted against the securities that it held. All that paragraph does is state the obvious and provide a narrative. On that basis it is unobjectionable.
10 The other category of objections has more substance. This category can be illustrated by quoting par 11 of the defendant's first affidavit:
Had all 81 B Zone cray pots been sold by the plaintiff in October 2006, the total indebtedness of the Company and my father to the plaintiff would have been reduced by $1.7 million.
11 The plaintiff complains this paragraph is objectionable because it is 'unsupported opinion'. And so it is. Under O 14 r 2(2) of the Rules of the Supreme Court 1971 (WA) an affidavit filed in opposition to an application for summary judgment 'may contain statements of information or belief with the sources and grounds thereof'. The paragraph complained of does not contain any reference to the basis upon which the defendant purports to give the evidence. In par 1 of the affidavit, the defendant does say that '… the matters to which I depose are true and correct in my own personal knowledge …'.
12 Clearly the value of cray pot licences at a particular time would be the subject of expert evidence if this matter were ever to go to trial. For the purposes of a summary judgment application it is not necessary to produce expert evidence. But the deponent in this case should at least have said on what basis he put a value on the cray pot licences. Presumably it is on the basis that he was a participant in the industry and has a reasonable working knowledge of the value of cray pot licences from time to time.
13 The plaintiff's complaints are not without substance. Both affidavits could have been better drafted. But on balance I was satisfied that the plaintiff's objections should be dismissed. I was satisfied that there was enough connection between the defendant's knowledge and the evidence he was giving to satisfy the requirements in O 14 r 2. Furthermore, the plaintiff put its case in such a way that even if the evidence of the defendant was accepted it would still be entitled to summary judgment. That was apparent from the way the plaintiff's written submissions were framed.
14 Accordingly, I was satisfied the defendant should be entitled to rely on both affidavits and the matter proceeded on that basis.
(Page 6)
15 As I understand the defendant's submissions, it was said that the failure of the plaintiff to sell the cray pot licences soon after it took possession of them gave to Zaza Nominees and Zaza Snr an equitable set-off in answer to any claim by the plaintiff against either of them. Effectively, what was said was the plaintiff was obliged to sell the licences promptly and if it had done so it would have recouped all that it was owed. In fact, it waited and received considerably less for the licences than it would have done if there had been an early sale. This, it was said, gave to Zaza Nominees and Zaza Snr a right of action against the plaintiff. The defendant, as a guarantor, was entitled to the same rights as the principal debtor and could therefore raise the equitable set-off in answer to the plaintiff's claim. The difficulty with this argument is the terms of the Guarantee Document. A copy of the Guarantee Document is to be found as annexure SKS17 to Ms Spiro's affidavit. Clause 7.1 of the Guarantee Document sets up the guarantee itself. The indemnity is set out in cl 11. Clause 14 deals with the guarantor's 'continuing liability'. By cl 14.2(c)(ii) the obligation is said to continue as between the plaintiff and the defendant even if the plaintiff '… fails to obtain, perfect, register or realise … any security …'. So it would seem in the face of it, at least, that the defendant is liable to the plaintiff whether or not it did in fact fail in any obligation it had to promptly realise its securities.
16 Counsel for the defendant countered that submission by submitting that it was not possible by contract to prevent a surety relying upon rights available to the principal debtor.
17 That proposition is supported by authority. In GE Capital Australia v Davis [2002] NSWSC 1146 Bryson J put the position as follows:
The jurisdiction of courts and the rights of parties to make claims before courts are not conferred by contract and cannot be ousted by contract. However there is in my opinion no infringement of this principle where parties agree that in stated circumstances a particular sum of money will change hands without the opportunity at the same time to obtain judicial disposition of any other claim between them. In the contract of guarantee there is no infringement of the principle where parties agree to ensure that the guaranteed sum will be paid, and make this the more certain by postponing litigation raising any cross-claim or set-off [97].
18 So, although by contract a guarantor cannot be prevented from raising as a defence an equitable set off, his right to do so can be postponed.
(Page 7)
19 That is exactly what the Guarantee Document has done. Clause 15.1 is in the following terms:
Until the Bank receives all the amounts which the customer owes the Bank and you are no longer liable to the Bank under this guarantee and indemnity, you must not without the Bank's prior written consent:
(a) claim or have the benefit of any set-off or make any counterclaim against the customer for any reason and whether or not the customer is insolvent;
…
20 This clause is in very similar terms to the clause found in the guarantee considered by Bryson J in the GE Capital case.
21 In my view, this clause puts an end to the defendant's argument taken at its highest. There was then no basis upon which the application for summary judgment could be resisted and I made the order accordingly.
22 I invited the plaintiff to bring in a minute of orders with updated figures. Costs should of course follow the event and the defendant should pay the plaintiff's costs of the application and of the action including all reserved costs.