| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : NSL CONSOLIDATED LTD -v- SPENCE [2011] WADC 114 CORAM : KEEN DCJ HEARD : 20-22 JUNE 2011 DELIVERED : 28 JULY 2011 FILE NO/S : CIV 1228 of 2009 BETWEEN : NSL CONSOLIDATED LTD Plaintiff
AND
SEAN SPENCE
Defendant
Catchwords: Guarantee - Variation to principal loan - Liability of guarantor Legislation: Nil Result: Judgment for plaintiff
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Representation: Counsel:
Plaintiff : Mr J M Healy
Defendant : No appearance
Solicitors:
Plaintiff : Middletons
Defendant : Not applicable
Case(s) referred to in judgment(s):
Dabbs v Seaman (1925) 26 CLR 538
Moschi v Lep Air Services [1973] AC 331
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1 KEEN DCJ: NSL Consolidated Ltd (NSL) claims against Sean Spence monies said to be due under a guarantee given by Mr Spence in respect of a loan of $500,000 made by NSL to Kingsway Resources Pte Ltd (Kingsway), a company incorporated in Singapore.
2 The monies were originally to be lent to be used as a deposit payable by Austind Iron Ore India Pvt Ltd (a company incorporated in India) (Austind) for its purchase of certain iron ore leases in India (the Matha Minerals Project) for $US71 million. 3 The loan was to be for a very short term and was structured so that the money was advanced to Kingsway and on-loaned to Austind. 4 Legal advice from India revealed that there were legal restrictions in India which prevented the repayment out of India of loans within a three-year period. Accordingly, the advice was that the money should be designated as an advance against equity in Austind. 5 The loan was made and a telegraphic transfer of the sum of $500,000 was effected on 17 July 2008 to the bank of Austind in Mumbai, India. 6 According to the loan agreement the loan was to be repaid on 31 July 2008. The date for repayment was extended through to 7 August 2008. This extension of time coupled with an alteration in the purpose for which the loan was originally to be made caused NSL to require a guarantee from Mr Spence which he gave by way of a deed dated 11 August 2008. 7 The monies advanced by NSL have not been repaid either by Kingsway or by Spence and NSL now seeks payment of those monies pursuant to the guarantee together with interest thereon under the loan agreement.
The defendant did not appear at trial 8 Mr Spence did not appear at the trial of this action. I have given separate reasons orally in court as to why I considered the action ought to proceed and it did proceed in his absence with NSL calling witnesses to prove its claim.
The loan agreement 9 The loan agreement (under a heading of 'Binding Terms Sheet') recites that under the terms of a memorandum of understanding in relation to Austind acquiring certain mining leases from Matha Minerals Pvt Ltd (Matha), Austind was to advance a fully refundable deposit in the sum of (Page 4)
$AU500,000 to a bank account controlled by both Austind and Matha. During the course of the trial this account was referred to as the escrow account. 10 The loan agreement recites that Austind had requested NSL to make those funds available on a short-term basis in return for granting to NSL a right of first refusal over the assets, being the mining leases referred to in the loan agreement, and that NSL had agreed to make the funds available to Austind by way of a loan through Kingsway and notes the proposal that Kingsway would provide the balance of the funds required to complete the acquisition of the assets and would ultimately control Austind. 11 The loan agreement then proceeded to set out a number of terms in relation to the loan. 12 The purpose of the loan is described in cl 2 as: The Lender must use the Loan to make an advance against equity to Austind so that Austind may pay the deposit. The Borrower directs the Lender to advance the Loan directly to the Deposit Account (the escrow account). Austind warrants that the deposit is fully refundable, will be held in the Deposit Account and will not be used for any purpose other than as set out in this Terms Sheet. 13 The loan agreement then set out in cl 3 a number of conditions which commence with the words: The Lender is not obliged to provide the Loan until the Lender has received all of the following in form and of substance satisfactory to the Lender. 14 There then follows a number of conditions relating to a draw down notice, legal confirmation as to certain matters, the consent of Iron Ore Hill Ltd (IOH) being obtained, an agreement with Austind whereby Kingsway would agree to make the loan available to Austind as an advance against equity on a fully refundable basis and a right of first refusal being granted in the terms of the annexure to the loan agreement. 15 Those conditions precedent were followed by a condition that: If the conditions set out above are not satisfied (or waived by mutual agreement of the parties) on or before 5 pm (WST) on 15 July 2008, the agreement constituted by this Terms Sheet (other than clauses 9 to 19 (Page 5)
which shall survive termination) will be at end and the parties will be released from their obligations under this Terms Sheet. 16 The loan agreement provided for repayment on or before 31 July 2008 with no interest. However the agreement provided that if the loan was not so paid then the borrowers must pay interest as set out in the loan agreement at the rate of 14% with daily rests. 17 The deed further provided for repayment in the following terms (cl 6): 18 Clause 7 of the agreement provides for events of default which include a failure to pay. The clause provides that: Upon the occurrence of an event of default the Lender may for so long as the event of default is continuing by written notice to the Borrower declare the Loan together with all interest and other outstanding monies to be immediately due and payable to the Lender without the need for any further demand or notice to be given. 19 Under cl 9 of the agreement, which comprises a number of warranties given by the borrower, it is warranted that Mr Spence is a director and shareholder of Kingsway. 20 The agreement also provides for service of notices authorised or required to be given. 21 The loan agreement is dated 16 July 2008, notwithstanding the proviso to the conditions precedent requiring satisfaction by 15 July 2008. The agreement is signed on behalf of NSL by its director, Mr Faldi Ismail, and Mr Sean Henbury, its secretary. It is also executed on behalf of Kingsway by Mr Spence and one other director/secretary.
The guarantee 22 The guarantee is dated 11 August 2008 and is expressed to be executed as a 'deed poll in favour of the lender'. It is signed by Mr Spence in the presence of Mr Peter Wall. (Page 6)
23 The guarantee recites the loan agreement of 16 July 2008 and the purpose of the loan of $500,000 as being 'a deposit for the acquisition of the Matha Mine in India'. 24 The guarantee then goes on to recite: The Lender has since agreed that the Borrower may apply the Loan for other purposes (namely land acquisitions by Iron Ore Hill Limited in India and other expenses). 25 By the guarantee Mr Spence agreed to guarantee to NSL the performance and observance by Kingsway of all its obligations under the loan agreement. 26 The guarantee provided at cl 1.4 is that: In the event of any breach by the Borrower of any term of the Loan Agreement the Lender may proceed to recover any amount of the Loan (and outstanding interest) as at the date of the breach as a debt or as damages from the Guarantor, without first having instituted legal proceedings against the Borrower and without first exhausting the Lender's remedies against the Borrower.
Notice of demand 27 By notice of demand dated 29 January 2009 and signed on behalf of NSL by its lawyers, Steinepreis Paganin, and addressed to Kingsway at its address for service of such notices set out in the loan agreement and to Mr Spence at 126 Cook Avenue, Hillarys, NSL made demand for repayment of the sum certified in the notice to be outstanding as at the date of the notice of demand, that is to say $539,125.77, and costs and expenses incurred by the lender in the sum of $1,500, within 14 days from the date of service of the notice of demand failing which NSL would exercise its powers including commencing proceedings for recovery.
Issues arising 28 A detailed and comprehensive defence filed on behalf of Mr Spence revealed a number of issues. The defendant put in issue the corporate identity of NSL and specifically denied the loan agreement and the guarantee. Mr Spence further denied the notice of demand and any breach of the loan agreement and the guarantee and the amount alleged to be owed. 29 In the event that there was a loan agreement as alleged by NSL, Mr Spence set up the conditions precedent and in particular the term that (Page 7)
those conditions should be satisfied by 15 July 2008. Mr Spence took issue with whether those conditions had been satisfied and indeed by that date. 30 By his pleading he also alleged that the loan agreement included implied terms and certain fundamental terms. 31 Mr Spence alleged that there was a breach of the loan agreement in respect of a number of the conditions precedent and the other terms alleged. 32 Mr Spence also sought to imply terms into the guarantee either by law or incorporated through the loan agreement. 33 Mr Spence denied a breach of the loan agreement and/or the guarantee and said that the loan agreement and/or the guarantee were discharged by a change of purpose or non-fulfilment of the conditions precedent or the other matters set up in the defence. 34 Mr Spence also alleged that the loan agreement and guarantee were conditioned by mutual purpose, common intention and unilateral intention. 35 Mr Spence further alleged that NSL was estopped from relying upon the loan agreement and/or the guarantee. 36 Mr Spence also prayed in aid s 51AA and s 51AC of the Trade Practices Act 1974 and alleged that NSL had engaged in unconscionable conduct. He further relied upon the Trade Practices Act 1974 and the Fair Trading Act 1987 to allege misleading or deceptive conduct on the part of NSL in relation to the loan agreement and the guarantee. 37 Finally, by reason of all of those issues, Mr Spence says that he suffered loss and damage which he seeks to set-off against NSL's claim and, in his prayer for relief he seeks declaratory relief and other orders.
Evidence 38 Mr Peter Wall is a solicitor and non-executive director of NSL. 39 He gave evidence about the lead up to the loan by NSL to Kingsway. 40 He said that there was an element of urgency in the transaction whereby Austind was to acquire the Matha Minerals Project and pay a deposit. (Page 8)
41 The monies that were to be lent by NSL were to be placed in an escrow account pending the finalisation of the acquisition. 42 At about this time NSL was in the process of a merger with IOH and required the consent of IOH to the loan. That consent was obtained (exhibit 11). 43 By 14 July 2008 advice had been received from India setting out the difficulties with the loan being repaid out of India within three years. Accordingly, Mr Wall said that NSL had to lend the money through an intermediary – Kingsway – a company which Mr Spence had told Mr Wall he controlled. 44 NSL also required a right of first refusal (ROFR) so that, in the event of Austind acquiring the Matha Minerals Project, NSL could acquire it at some future date. 45 Mr Wall produced a number of emails between himself and Mr Spence and others involved in this rapidly evolving scenario leading to the loan being advanced. Indeed, much of the whole transaction both leading to the advance and after was conducted by email communication. 46 Mr Wall said that a loan agreement was drafted and sent to the various interested parties including an Indian lawyer, Ranjit Prakash, for his advice. It was he who provided the advice of the difficulties with the loan and its repayment within three years and advised that the transaction be structured as an advance against equity in Austind. 47 These emails continued throughout 14 and 15 July 2008 enclosing draft documents including the loan agreement, ROFR, and a memorandum of understanding (MOU) relating to the advance from Kingsway to Austind. 48 On 15 July 2008 the board of NSL approved the loan of $500,000 to Kingsway. 49 According to the evidence of Sean Henbury, the company secretary of NSL, the loan agreement and ROFR were executed by NSL by its director Faldi Ismail and Mr Henbury on 16 July 2008 at the offices of Steinepreis Paganin. On that occasion Mr Spence was also present and he executed the documents on behalf of Kingsway. 50 Also on that date Mr Spence executed the MOU in the presence of Mr Wall and Mr Ismail. He also executed on behalf of Kingsway a (Page 9)
drawdown notice in respect of the funds. That drawdown notice was provided for in the form of loan agreement and is, relevantly, in the following terms: 51 That drawdown notice is dated 16 July 2008 and is signed by Mr Spence for and on behalf of Kingsway. 52 The documents, including the loan agreement and the ROFR, were then sent by email on 16 July 2008 to one Alison Byrne at the request of Mr Spence for further execution by Kingsway through one Peter Stafford. The loan agreement expressed Peter Stafford as being a director of Kingsway. 53 The documents were returned again by email that same day duly executed by Mr Stafford. 54 The relevant documents became exhibits: 55 The loan was not advanced directly to Kingsway. Mr Wall said that Mr Spence instructed him that there was insufficient time for the money to go to the account of Kingsway and then on to Austind and so instructed Mr Wall that the funds should be sent directly to Austind. 56 Mr Henbury in his evidence said that he went to the Westpac Bank on 17 July 2008 and effected a telegraphic transfer to Austind's account in the sum of $AU500,000. Exhibit 27B is the confirmation of the telegraphic transfer. (Page 10)
57 On the same day by email (exhibit 27A) Mr Henbury sent to Mr Spence and others a copy of that telegraphic transfer confirmation. 58 Mr Wall said that following that email Mr Spence never queried with him the sending of the money to Austind. He said that there had been numerous conversations with Mr Spence as to how the money was to be advanced, that is to say to Austind, before the telegraphic transfer took place. 59 As noted, these funds were to be held in an escrow account. 60 Mr Wall gave evidence that after the telegraphic transfer had occurred there appeared to be a delay in the funding of the $US71 million for the purchase of the Matha Minerals Project. Those in NSL became concerned that the transaction might not go through. He said that Mr Spence had advised that he was using Kingsway as the necessary fundraising entity (exhibits 31 and 32). 61 Mr Wall said that Mr Spence did not raise the necessary capital for the project by 31 July 2008 and through Kingsway requested an extension of the repayment date under the loan agreement to 7 August 2008. By email on 30 July 2008 (exhibit 33) Mr Wall, on behalf of NSL, agreed to the extension. 62 A Mr David Catsoulis was also involved with Mr Spence in the transaction and was frequently included in the broadcasts of emails. 63 In early August 2008 Mr Wall said that he had discussions with Mr Catsoulis and Mr Spence, the substance of which was that the $500,000 fund held in the escrow account could be used for a better purpose during the delay in obtaining funds for the acquisition of the Matha Minerals Project. That alternative purpose was described as providing capital to pay expenses and for the purchase of other titles by IOH. 64 He said that in telephone discussions regarding this with Mr Spence Mr Spence at no time objected to this alternative use of the funds. 65 On 3 August 2008 Mr Catsoulis sent an email (exhibit 34) to Mr Wall and to others, including Mr Spence, setting out various scenarios for the use of these funds. Mr Wall said that he had further discussions with Mr Spence by telephone and the outcome was set out in a further email of 3 August 2008 at 8.03 pm which was sent to the interested parties (Page 11)
including Mr Spence. The emails continued into 4 August 2008 (exhibit 36) and in an email on that date at 7.00 am Mr Spence said: In relation to the information below (that being a reference to an email at 5.56 am from Mr Catsoulis) I consider the most commercial and fair way to proceed is for the loan to be now between IOH/Austind and NSL as the transaction is now for the benefit of both. Before this can happen I must be convinced this does not affect the purchase of Matha Mine process as I was convinced the $500K was a key milestone in that project. Can we all proceed with this process in a fair and commercial fashion for the benefit of all. I suggest all accounts for payment be available to IOH/Austind prior to payment for accounting purposes. Please confirm who and which entity incurred the expense and for what purpose. This should start our accounting process moving forward considering $75 million is being made available this week. 66 This was followed by an email (exhibit 54) dated 5 August 2008 at 11.28 am from Mr Spence to Mr Ismail and others including Mr Wall in which Mr Spence said: In response to the amount of $500k being available for the settlement of land and IOH expenditure I confirm the following: Kingsway Resources will allow the funds, with NSK approval to be used specifically for acquiring land and key creditor payments that the board of IOH have endorsed as being for immediate payment. Kingsway Resources Pte Ltd will still have a loan with NSL Health Ltd and be responsible for payment of such. The subject conditions for this to happen are as follows: 1) The $5500k will now represent equity in Austind/IOH. 2) Austind/IOH will not accept funds from any other source other than Kingsway Resources Pte Ltd for the next five working days. 3) NSL must accept the above (2) conditions. Regards Sean 67 However, according to Mr Wall there were still issues. NSL was still not convinced that IOH and Austind had the capacity to repay the (Page 12)
$500,000 if the loan was assigned to them. NSL's preferred position was the repayment of the loan, but he said that it would allow it to be applied for a different purpose if the loan was guaranteed by Mr Spence. 68 On 5 August at 2.31pm Mr Wall sent an email to Mr Spence and others (exhibit 43) with a draft guarantee. According to the evidence of Mr Ismail when he received the request for an extension of time for payment (exhibit 33) he spoke to Mr Spence on 30 July. He said that he made Mr Spence aware of the guarantee 'he had provided' to the company. 69 Mr Wall said that Mr Spence did not sign the guarantee immediately and he again emailed Mr Spence in relation to it on 7 August and 9 August 2008. 70 On 9 August 2008 at 8.50 am Mr Spence replied that he would do it (sign the guarantee) that day. Exhibit 44 is a string of emails making inquiry as to the guarantee and Mr Spence's reply. 71 The guarantee (exhibit 45) was signed on 11 August 2008 by Mr Spence in the presence of Mr Wall at the office of Steinepreis Paganin. 72 Before signing the guarantee Mr Wall said that he explained the effect of the guarantee to Mr Spence, that is to say that Mr Spence would be liable if Kingsway defaulted and also discussed with him the use to which the funds would be put for the alternative purpose. Mr Wall said that that use of the funds was discussed with Mr Spence and finalised before he sent the draft guarantee to him on 5 August under exhibit 43. 73 Mr Wall gave evidence that following this the monies were not repaid. A number of emails were sent to Mr Spence (being exhibits 48 and 49) and Mr Wall said that on 29 January 2009 notice of demand was sent. 74 His evidence in respect of this notice of demand was: Has the loan agreement – or has the money been repaid under the guarantee by Mr Spence? – No, they have not. And how do you know they haven't been repaid? – As a director of the company I would receive notice of it, and we've also made demands of both Kingsway and Mr Spence and neither of them have paid since those demands were made. Yes. You mentioned that you had sent a notice of demand to the parties. Was that to Kingsway and to Mr Spence? – Yes. (Page 13)
And do you recall when you did that? – I can't recall the exact date, no. Could you please look at document 916 … Are you able to say what that document is? – Hang on a second. It's a notice of demand to both Kingsway and Mr Spence from NSL Health Ltd dated 29 January 2009 and sent by Steinepreis Paganin on behalf of NSL Health. Was that a notice sent by you? – Yes, it was. I seek to tender that document, your Honour. KEEN DCJ: Can I just inquire, you say the letter was sent; how was it sent and to where? – To the best of my recollection, it would have been sent by courier or registered post to both the addresses on the notice of demand. HEALY, MR: Are you also able to look at document 913? KEEN DCJ: Hold on. Is that linked to this? – Yes. HEALY, MR: Are you able to say what that is? – It's an email from myself to Mr Spence dated 29 January 2009 at 11.34 am, copying in Mr Cedric Goode, where I've said to Sean; "As discussed while you were away, NSL have agreed to take action in respect of the loan to Kingsway. In this regard attached is a without prejudice letter reflecting an arrangement you discussed with – Mr Goode in India, together with a notice of demand. We can talk about this tomorrow when we meet". Yes? – It encloses a notice of demand. Does that refresh your memory in relation to how the notice of demand was sent? – It was obviously sent by this email. I can't recall if we ultimately would have sent it by registered post or courier otherwise. KEEN DCJ: Well, that's just the point. You see, just now you said that you weren't sure if it was by courier or registered post and now you're saying you're not sure. Now, was it sent by way of email or was sent it by some other means? – Your Honour, standard practice within the firm would be to send it by courier or registered post but I believe we could not find … Is there any record of that? – A record of it? No record. 75 The email of 29 January 2009 with a copy of the notice of demand became exhibit 46. (Page 14)
76 Mr Faldi Ismail also gave evidence. He was a director of NSL at the material time. 77 Mr Ismail's evidence was not very compelling and did little to add to the evidence of Mr Wall or Mr Henbury. Indeed much of his evidence was contradictory and was a reconstruction in that he referred to various documents, not to refresh his memory but, it appeared to me, to construct a narrative. 78 Examples of his evidence which was contradictory or inconsistent with that of Mr Wall or the contemporaneous documents was that there was a guarantee from Mr Spence at an earlier stage and that funds were to be advanced to Austind which he later corrected to Kingsway.
Findings of fact 79 I am satisfied as to the corporate identity of NSL (exhibit 56). 80 I am also satisfied as to the corporate entity of Kingsway (affidavit of Natalie Claire Collins sworn 20 July 2011, annexure NCC-1) and from the evidence that Mr Spence was a director of Kingsway. I am satisfied that he held himself out as having that capacity and also there is a warranty to the effect in cl 9 of the loan agreement signed by him on behalf of Kingsway. 81 Further, I am satisfied that at every stage of the transaction leading to the loan of $500,000 being advanced, he was well aware of the various developments that were taking place; he either being directly involved or being kept informed by reason of emails which were either sent to him or broadcast to him amongst others. 82 I find that whilst the loan agreement provides for the conditions precedent set out in cl 7 of the loan agreement to be satisfied by 5.00 pm WST on 15 July 2008, Mr Spence was aware that the negotiations were still ongoing through to the signing of the loan agreement on 16 July 2008. He continued to negotiate with and deal with NSL with a view to the loan to Kingsway being made and indeed authorised the payment to Austind (to be held in the escrow account) on 17 July 2008. Accordingly, I am satisfied that by his actions on behalf of Kingsway to the extent that the time limit for satisfaction of the condition precedent was self-executing, he waived that requirement. 83 I also find on the evidence of Mr Wall, Mr Ismail and Mr Henbury that each of the other conditions were satisfied before the loan was made, (Page 15)
that is to say the drawdown notice was completed, the legal confirmation was obtained, the consent of IOH was obtained, there was an agreement with Austind under the MOU and the ROFR had been completed. 84 I accept the evidence of Mr Wall and Mr Henbury to the effect that the money was paid direct to Austind on the instructions of Mr Spence on behalf of Kingsway. That being the case I am satisfied that NSL completed the loan to Kingsway. 85 It is clear that it was Mr Spence who was to negotiate the capital raising of the $USD71 million referred to in the MOU (in a mandate in relation to the fundraising which was given to Mr Spence the sum of $US75 million is referred to, but in my view nothing turns on this difference). I am satisfied that by 31 July 2008 this capital raising had not been completed and the loan had not been repaid. 86 I am also satisfied that NSL agreed, at the request of Mr Spence, to extend the repayment date to 7 August but without foregoing its right to claim interest under the loan agreement from 31 July. 87 Thereafter it became clear to NSL that the acquisition of the Matha Minerals Project might not proceed. In fact, according to the evidence of Mr Wall another party had claimed an interest in this project – see exhibit 39. 88 I am satisfied that at this time, that is to say on 7 August 2008, Kingsway had not repaid the loan and was in breach of the provisions of the loan agreement as set out in cl 6 of that agreement. 89 I accept the evidence of Mr Wall to the effect that negotiations then took place which involved Mr Spence whereby the original purpose for the loan to Kingsway (under which the $500,000 was still in the escrow account) would be replaced with another purpose, i.e. to provide working capital for Austind and to pay expenses and to enable IOH to acquire land in India. 90 I am satisfied that Mr Spence was well aware of this change of purpose and acquiesced in it on behalf of Kingsway. Further, as noted by counsel for the plaintiff it is clear from all the correspondence and surrounding circumstances including that these matters involved acquisitions and international investments that it can be inferred, and I do so infer, that Mr Spence was not a novice in business matters and he understood what was being undertaken. (Page 16)
91 It seems to me that this change in the nature of the transaction could also have been achieved by the sum of $500,000 being repaid to NSL from the escrow account and then NSL re-lending to Kingsway for this new purpose. That step was not taken but the effect was the same. 92 However this was a new deal and NSL required further security in the way of a guarantee from Mr Spence which he gave on 11 August 2008. I am satisfied that that was a valid guarantee executed by him. 93 The guarantee recites the loan to Kingsway and the change of purpose. The guarantee is based upon that fact and Mr Spence cannot now deny the facts set out in those recitals; Dabbs v Seaman (1925) 26 CLR 538, 548 et seq. 94 Further, despite my finding that the conditions precedent to the loan agreement had been fulfilled, I find that those conditions related to the loan for the purpose set out in that loan agreement and that when that purpose was altered those conditions precedent fell away in the sense that they were not a necessary part of the loan for the altered purpose. 95 As I have noted, I am satisfied the loan was not repaid on 7 August 2008 and has not been repaid since. I accept the evidence of Julian Tambyrajah, the chief financial officer of NSL, to this effect. 96 Mr Wall gave evidence as to the giving of the notice of demand to both Kingsway and Mr Spence. I have set out his evidence in relation to this in detail. 97 The guarantee does not make provision for the service of a notice of demand. The loan agreement at cl 16 provides for service of any notices authorised or required to be given and provides that that notice 'shall be in writing and may be delivered personally or sent by properly addressed prepaid mail addressed to the party'. For the purposes of Kingsway the address notified is c/o Platinum Alliance, Suite 4/295 Rokeby Road, Subiaco. 98 I cannot be satisfied that the notice of demand was served on either Kingsway or Mr Spence. The evidence as to that is just too vague to make any relevant finding of fact. 99 However I am satisfied that from 6 October 2008 to 12 January 2009 Mr Wall was in communication with Mr Spence regarding repayment of the loan and, in a series of emails (exhibits 48 – 53) demands were made of Mr Spence for proposals for repayment. Accordingly, I find that (Page 17)
Mr Spence was well aware of the demands that NSL was making for repayment of the loan. He was well aware both in his personal capacity and on behalf of Kingsway. 100 In response to an email of 6 October 2008 at 9.59 am, in which NSL sought a timetable for repayment, Mr Spence said at 11.30 am merely '2011'. In an email of 25 November 2008 Mr Spence said: I am continuing to raise for IOH and also accept that $500K needs to be paid back to NSL. 101 Finally, in an email of 11 January 2009 (exhibit 53) Mr Spence said: 102 By letter dated 14 April 2009 from NSL's solicitors (Middletons) to Mr Spence (part exhibit 47) NSL set out the history of the matter and referred to the notice of demand issued on 29 January 2009. The letter gave notice that failing payment of the sum then due within seven days at the date of the letter proceedings would be instituted. That letter was also sent to Mr Spence by email on 14 April 2009 and he responded that day (part exhibit 47). 103 In all those circumstances I find that both Kingsway and Mr Spence were made aware and were aware that NSL was seeking and demanding repayment of the $500,000 loan and interest.
Resolution of the issues raised 104 As I have noted, I am satisfied that the time within which the condition precedent had to be fulfilled was extended and I find that those conditions were satisfied. 105 I am also satisfied that the loan to Kingsway was made, albeit directed by Mr Spence on behalf of Kingsway to be paid to the account of Austind. 106 Once that sum was paid I find that there was a new purpose agreed between the parties for the loan. The fact of the loan to Kingsway still existed. However, with the new purpose, the conditions precedent ceased to have any relevance and fell away. That being the case, and on that basis, the issues raised in the defence relating to implied conditions and/or (Page 18)
terms and the fundamental terms of the loan agreement all fall away. In any event, I heard no evidence from Mr Spence which might have assisted (if relevant) in relation to the imposition of any implied terms. 107 Further, as to the incorporation of terms from the loan agreement into the guarantee as alleged again by reason of the fact that the loan had been made and the change of purpose had occurred these would fall away as would the issue of whether terms should be implied into the loan agreement. In any event as a matter of law I am not satisfied that any terms need to be implied into the guarantee in order to give it business efficacy and again I heard no evidence or argument to support such a proposition. 108 Given my finding that there was an agreement to change the purpose for the loan, which is recited in the guarantee, the loan agreement and guarantee were not discharged by reason of that change of purpose. In any event the change was effected before the guarantee was entered into and so the guarantee was in respect of the loan with that change of purpose in place. 109 All of the other issues raised in or by the defence (save for the notice of default which I will come to) have not been proved. The issue of mutual purpose for the loan falls away for the reasons expressed as do the issues relating to common and unilateral intention said to underpin the loan agreement and guarantee. Similarly the issues raised in the defence as to estoppel, unconscionable conduct, misleading or deceptive conduct or the loss and damage said to have been suffered by Mr Spence have not been made out by the provision of evidence, argument or otherwise. For all of these issues raised I have received no evidence or argument to support or advance those issues and I am not satisfied that those issues have been made out in favour of Mr Spence. 110 I return to the notice of demand. As I have noted, I am not satisfied as to service of the notice and therefore I proceed on the basis that there is no such valid notice of demand. 111 The question then is whether such a notice was required to be served either on Kingsway or on Mr Spence as a precondition to the enforceability of the guarantee. 112 Clause 6 of the loan agreement provides: The Loan must be fully and finally repaid, together with all other interest and outstanding monies, on the earlier to occur of: (Page 19)
113 The repayment date was extended to 7 August 2008. There is no earlier notice of default under cl 7 and accordingly the loan was repayable on 7 August 2008. 114 NSL argues that the money was due and payable and the liability to pay at large from that date and non-payment is a breach of the loan agreement. 115 The guarantee provides at cl 1.1: The Guarantor agrees to guarantee to the Lender the performance and observance by the Borrower of all of its obligations under the Loan Agreement. 116 At cl 1.4 it is provided that: In the event of any breach by the Borrower of any term of the Loan Agreement, the Lender may proceed to recover any amount of the Loan (and outstanding interest) as at the date of the breach as a debt or as damages from the Guarantor, without first having instituted legal proceedings against the Borrower and without first exhausting the Lender's remedies against the Borrower. 117 NSL argues that there is a breach by Kingsway by non-payment from 7 August 2008. It is said that the notice of demand is not required to turn non-payment into a breach – it already has that status and the liability arises under the guarantee. 118 There is no provision in the guarantee that requires notice of demand to be served under the guarantee upon Mr Spence before enforcement proceedings are taken. 119 Clause 7 of the loan agreement provides for events of default and provides: Upon the occurrence of an event of default the Lender may for so long as the event of default is continuing by written notice to the Borrower declare the Loan together with all interest and other outstanding monies to be immediately due and payable to the Lender without the need for any further demand or notice to be given. 120 That clause, whilst including as an event of default a failure to pay any amount due under the agreement, sets out a number of defaults which (Page 20)
may occur before the express or extended payment date as provided in cl 6. If that were so then a notice would be required to advance the payment date and thus trigger a breach of the agreement in the event of non-payment. 121 That is not the present case. The extended date of 7 August 2008 had passed, the loan had not been repaid and Kingsway was in breach as contemplated in cl 1.4 of the guarantee and Kingsway had not performed or observed its obligations under the loan agreement. 122 The guarantee was entered into on 11 August 2008 in respect of the loan which was already due and payable. In other words, Mr Spence was guaranteeing a liability to pay that was already in existence and not one that would arise at some future date. 123 In those circumstances I am satisfied that on a proper construction of the loan agreement (as modified as to the change of purpose) and the guarantee, no notice of demand was required to be served on Kingsway in order to trigger the liability of Mr Spence under the guarantee and, further, no notice of demand was required to be served upon Mr Spence under the guarantee. Further, as noted by the plaintiff in submissions there is, as a matter of law, no need for a creditor to notify the surety before making demand under the guarantee: Moschi v Lep Air Services [1973] AC 331, 356 - 357. 124 Accordingly, the notice of demand that was issued was an unnecessary step and the failure by NSL to prove service does not affect its right of recovery. 125 In any event, as I have noted, between October 2008 and January 2009 Mr Spence was well aware that NSL required repayment of the loan.
Conclusion 126 In this case I am satisfied that the guarantee is a valid and enforceable guarantee in respect of the loan of $500,000 made to Kingsway which has not been repaid. Accordingly, NSL is entitled to judgment for the amount of the loan together with interest thereon under the loan agreement which provided for interest at the rate of 14% per annum calculated with daily rests from 31 July 2008. 127 I will hear counsel as to the calculation of that interest.
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