National Australia Bank v Sanders
[2001] VSC 314
•25 June 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL & EQUITY DIVISION
No. 4300 of 1998
| NATIONAL AUSTRALIA BANK (ACN 004 044 937) | Plaintiff |
| v | |
| JOHN WINTON SANDERS and MILTON GEORGE YOUNG | Defendants |
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JUDGE: | Byrne J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 18, 19, 20 and 21 June 2001 | |
DATE OF JUDGMENT: | 25 June 2001 | |
CASE MAY BE CITED AS: | National Australia Bank v Sanders | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 314 | |
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Banks and banking – guarantee and indemnity – misrepresentations – estoppel – misleading and deceptive conduct – misrepresentations not made – question of fact.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | A. Schlicht | Russell Kennedy |
| For the Second Defendant | N. Jones | McKean & Park |
| First Defendant | No appearance |
HIS HONOUR:
The plaintiff, National Australia Bank Limited ("the Bank") sues the secondnamed defendant, Milton George Young, seeking judgment for a sum a little in excess of $1 million said to be owing under a guarantee signed by him on 29 February 1996. The firstnamed defendant, John Winton Sanders, who signed the guarantee on 1 March 1996, is a bankrupt; no order is sought against him.
Notwithstanding that the Bank's proofs are put in issue in his defence, Mr Young did not challenge them at trial. I am satisfied that the primary debtor, Express Freight Services International Pty Ltd ("EFSI") is indebted to the Bank in the sum claimed, and that Mr Young on 29 February 1996 executed the guarantee and indemnity under which he assumed liability for this debt.
In his defence and counterclaim Mr Young raised a number of affirmative allegations, including what might be called an Amadio defence; an allegation that the Bank failed to advise him to seek independent legal advice, or to read the guarantee carefully before signing it; an allegation that it failed to advise him of the effect of the guarantee; and, finally, an allegation of unconscionability. Very properly, given the facts of this case, counsel did not press these allegations and I shall say nothing further about them.
The remaining defence and counterclaim turned upon Mr Young's allegation that, before he signed the guarantee, the Bank's officer concerned, Giovanni, or John, Maggiore, made the following representations, and I quote from paragraph 8 of the pleading:
"(b)Mr John Maggiore informed the secondnamed defendant that the secondnamed defendant had to sign the guarantee as it was part of the paper work that the system required;
(c)Mr John Maggiore informed the secondnamed defendant that the plaintiff would not make any demands against the secondnamed defendant pursuant to the guarantee as the guarantee was purely an exercise to complete paper work;
(d)Mr John Maggiore informed the secondnamed defendant that the plaintiff held plenty of security over the property owned by Mr John Sperlinga securing any indebtedness of the customer to the plaintiff and the secondnamed defendant would not have any problems as a result of signing the guarantee;
(e)Mr John Maggiore informed the secondnamed defendant that any debt owed by the customer to the plaintiff was well and truly secured by properties owned by Mr John Sperlinga; ...
(h)Mr John Maggiore failed to inform the secondnamed defendant of the consequences of the guarantee if the customer should default on the loan referred to in paragraphs 2 and 3 of the statement of claim."
These representations, which are said to be false, are relied upon in the defence as giving rise to an estoppel and, in the counterclaim, as constituting misleading and deceptive conduct contrary to the Trade Practices Act 1974.
Before I turn to the evidence of these matters it is necessary to touch briefly upon the background. The business of EFSI was that of an interstate transporter of goods which it commenced to operate on 7 February 1996. Before that date this business had been conducted from March 1995 by another company, Express Freight Services Pty Ltd ("EFS") as trustee of the Express Freight Services Unit Trust, and before that date by Transet Express Pty Ltd. Both of these two predecessor companies had failed. Each of them was controlled and owned by members of two families, the Concas family and the Sperlinga family.
Transet Express had banked with the ANZ Banking Group, and when it collapsed its accountant approached Mr Maggiore, the business banking manager at the Bank's Glenroy branch, for financial assistance upon the first reincarnation. The accountant, Mitch Karafili of Mitch Karafili & Co, asked the Bank and Mr Maggiore agreed, to provide EFS with $600,000 finance to pay out the ANZ Bank and a $100,000 overdraft facility. By way of security for these facilities the Bank took a mortgage debenture over the assets of EFS, seven mortgages over land, and guarantees and indemnities from nine members of the Concas and Sperlinga families, and from two companies apparently associated with them.
Notwithstanding this assistance, EFS was in severe financial difficulties by December 1995. In January 1996, the Bank appointed Mr Jonas of Pitcher Partners to be receiver and manager under its debenture charge. Mr Jonas in late January or early February agreed to sell the debtors of EFS to the new company, EFSI. The finance for the purchase was to be provided by the Bank making a $600,000 loan to EFSI which was to be repaid by monthly instalments of $150,000 commencing in May 1996.
The Bank, however, insisted as a precondition to giving support to this, the second phoenix company, that it have a new management structure. Two of the creditors of EFS were its subcontract carriers, Fleetway Transport in Western Australia, and Hirlands Pty Ltd trading as Densley's Transport in Queensland. Fleetway, which was owed about $20,000 by EFS, was owned by Mr Sanders. Densley's Transport, which was owed by EFS a little over $60,000 was owned by Mr Young and a Barry Densley.
Mr Young and Mr Sanders came to Melbourne in February 1996. Mr Sanders said he had heard that EFS was in trouble, but he understood that it had a viable business and enjoyed the confidence of the Bank. He came to Melbourne to see if a strategy could be devised to save the business and to recover the amount owing to his company. He learned that a new company was being established for the purpose, and he agreed to become its director. Mr Young said he had come to Melbourne in late January to collect money owing to his company. He said he heard about the establishment of the new EFSI company, and eventually he was asked to be part of it, and he agreed. He declined, however, to be a director.
And so EFSI became incorporated and became the trustee of a new unit trust, the EFS Investment Trust. Somehow the business of EFS was transferred to EFSI. The new directors of EFSI were Mr Sanders, Michael Burns Finlan, the EFS depot manager in Western Australia, and Graham Ralph Carroll, the finance director of EFS. Of the units in the trust, the share of the Sperlinga and the Concas families was only 20 per cent. Mr Sanders and Mr Young each received a similar or greater share in the issued units.
The guarantee and indemnity was signed on 29 February 1996 by Giovanni Battista Sperlinga, Giuseppe Concas, Maria Sperlinga, Severino Concas and Mr Young; on 1 March 1996 by Mr Sanders and Mr Carroll; and on 3 March 1996 by Filippo Sperlinga and Giuseppa Sperlinga. And so the Express Freight business was reborn a second time. It was fated to repeat the experience of its predecessors. It failed to pay the first instalment to the Bank due in May 1996, and the Bank withdrew its support. The guarantees were called upon. Mr Sanders and Mr Carroll became bankrupt. The Sperlinga and Concas families last year made a payment, following settlement of the Bank's claims upon them, of some $900,000. The balance, which as at 30 November 2000 stood at $1,001,542.19, is sought from Mr Young, the remaining guarantor.
Against this background I turn at last to the alleged misrepresentations. It was put on behalf of Mr Young that they were made by Mr Maggiore at least in the first instance in Mr Carroll's office after a meeting in the EFSI boardroom at Essendon Airport. It is likely that this meeting took place on Thursday, 22 February 1996 as a presentation to the bank officers, Mr Maggiore and his district commercial manager, Andrew Phillip Parker. A large number of people were present at the presentation meeting apart from the two bank officers. They were Mr Karafili, Mr Sanders, Mr Young, Mr Finlan, Peter Scully who was to be the manager of EFSI, and members of the Sperlinga and Concas families. There was also a technician who demonstrated a new computer system which EFSI was to use.
Of these persons all gave evidence except Mr Scully, Mr Carroll, the Sperlinga and Concas family members, and the technician. No party invited me to draw any inference from any failure to call any of these persons and I shall not do so.
Mr Young told me that there was no mention of guarantees at the larger presentation meeting. There was, he said, a heated discussion concerning the property securities which the Bank would hold. The representatives of the Sperlinga and Concas families took the position that it was unfair for them to provide 100 per cent of these securities when they only had 20 per cent of the units. Mr Young said he was not interested in this debate, so he left the meeting to speak with Mr Carroll in his office. It seems that he was unhappy that Mr Carroll had previously lied to him about payments to his company and he wanted to discuss the matter. In Mr Carroll's office he found Mr Maggiore. Only three men were present: Mr Carroll, Mr Maggiore and Mr Young.
In the course of conversation, when Mr Maggiore asked if he would sign a guarantee, Mr Young refused. A day or so later Mr Young said he heard from Mr Scully that there was a problem with the guarantees, and so he telephoned Mr Maggiore to find out what was going on. In the course of this conversation he said that Mr Maggiore said this, and I quote from the transcript at page 213:
"He said there are more than enough securities here and if something ever happened I would be right. I asked what did he mean and he said if it went bad I would never be caught anyway and 'we are just going to tie up the paper work'."
He said nothing of an earlier meeting in Mr Carroll's office.
Mr Finlan also spoke about the representations by Mr Maggiore. He too said there was no discussion of the guarantees at the larger presentation meeting. He said that on a later date, perhaps the following week, he was present at Mr Carroll's office. Also present were Mr Maggiore and Mr Young. On this occasion Mr Maggiore said this, in response to Mr Young's inquiry about the risk that his guarantee may be called upon, and I quote from page 132 of the transcript:
"He stated that so long as the company stayed within the guidelines of the loan from the Bank that there would be no reason that Milton Young would ever be called on because of the properties that was held already by the National Bank to the value of $1.1 million."
Mr Maggiore denied that he attended either of these meetings in Mr Carroll's office and denied that he said the words attributed to him. He said that at the presentation meeting he raised the question of guarantees with each of the unitholders. He said each of Mr Young, Mr Sanders, Mr Finlan and Mr Carroll agreed to provide a guarantee. He said, and this is confirmed by Mr Karafili, that Mr Finlan on 28 February withdrew his agreement and the Bank accepted this.
He said that Mr Young on 29 February came to his office to sign the guarantee, and that he sent Mr Young to an independent solicitor, Gary Kliger, employed by De Marco & Co, for advice and to witness his execution of the documents. This was done.
Against this factual material, I find on the balance of probabilities that I am not satisfied that the representations alleged in the pleadings were made by Mr Maggiore. I reach this conclusion for a number of reasons: first, although Mr Young impressed me as a straight‑talking practical man, his account departs in significant respects from that of Mr Finlan. It is inconsistent with the evidence of the Bank's witnesses. As expressed in the pleadings, the representations are inherently improbable, and no good reason was given for Mr Maggiore to have made them. Mr Young's account is not consistent with his response to the Bank's calling upon the guarantees in late 1996 and thereafter. So far as the evidence shows, his present allegation first appeared some three years after the event in the defence and counterclaim filed in February 1999.
It follows from this conclusion that the defence and counterclaim must fail. There should be judgment for the Bank.
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