PK Holdings Pty Ltd v Suncorp Metway Ltd

[2006] QDC 58

[2006] QDC 058

DISTRICT COURT

CIVIL JURISDICTION

JUDGE ROBIN QC

No BD2085 of 2005

PK HOLDINGS PTY LTD ACN 000 173 679	Plaintiff
and
SUNCORP-METWAY LIMITED ACN 010 831 722	Defendant

BRISBANE

..DATE 02/02/2006

ORDER

CATCHWORDS: Uniform Civil Procedure Rules r 292 - defendant bank resists summary judgment on bank guarantee it issued in respect of a tenant's obligations under a lease - triable issues said to be (1) whether the "Favouree" had assigned the guarantee to a new landlord on sale of the premises contrary
to a provision of the guarantee, (2) whether the plaintiff Favouree had by letter indicated the guarantee was at an end, (3) whether the claim was made in respect of loss and damage of the new landlord (which had conduct of the claim in the Favouree's name) contrary to the lease agreement terms which restricted the use of the guarantee, (4) whether the tenant exceeded the true "loss and damage".

HIS HONOUR:  This is the plaintiff's application for summary judgment under Rule 292.  It is an odd situation in which if it were the trial and the evidence were the same, the plaintiff could expect the judgment.  It seems that the action has been allowed to proceed a considerable distance before the application was made.  Pleadings have closed.  I am not critical of the plaintiff or suggesting that it is disadvantaged by delay.  It was sensible enough to await the close of pleadings before the application was brought.

The conditions to be satisfied if the plaintiff is to obtain a judgment are that the Court be satisfied the defendant has no real prospect of successfully defending, and that there is no need for a trial.  At first blush, what stands in the defendant's way is that it is sued as the issuer of a "bank guarantee" in the following, clear terms:

"1.  This undertaking and guarantee is to continue until:

a)a notification has been received from the Favouree that the Sum is no longer required by the Favouree; or

b)this undertaking and guarantee is returned to the Bank; or

c)payment to the Favouree by the Bank of the Sum or such part of the Sum as the Favouree may require.

2.Should the Bank be notified in writing purporting to be signed by or for and on behalf of the Favouree that the Favouree desires payment to be made of the whole or any part or parts of the Sum, it is unconditionally and irrevocably agreed that such payment or payments will be made to the Favouree immediately without reference to the Customer.  Such payment or payments will be made whether or not any notice has been given by the Customer to the Bank not to make any such payment.

3.The Bank may at any time without being required to do so pay to the Favouree the Sum less any amount or amounts it may previously have paid under this undertaking and guarantee or such lesser sum as may be required and specified by the Favouree and upon doing so the liability of the Bank under this undertaking and guarantee shall immediately cease and determine.

4.The benefit of this undertaking and guarantee is not assignable by the Favouree."

Reference has been made in argument to such documents being regarded as the equivalent of cash, at all events since Wood Hall Limited v. The Pipeline Authority [1979] 141 CLR 443. It has been the general approach that there rarely can be any answer to a demand made pursuant to such an instrument.

Locally, see Washington Constructions Company Pty Ltd v. Westpac Banking Corporation [1983] 1 Queensland Reports 179.

It has been demonstrated to the Court that there may be exceptional cases as contemplated by Stephen J in Wood Hall itself.  Reference was made to Hortico (Australia) Pty Ltd v. Energy Co. (Australia) Pty Ltd (1981) 1 New South Wales Law Reports 545 and, more dramatically, considering the outcome, Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd [1991] 23 New South Wales Law Reports 451.  Nonetheless, I consider it a significant matter to delay a plaintiff in the obtaining of a payment under such an instrument.

What are the reasons on which the defendant relies to resist the simple argument of Mr Dunning SC for the applicant that an unconditional bank guarantee in customary form has been proved and the making of a claim on the issuer by the plaintiff, being the beneficiary or favouree.

The instrument itself describes how it may be discharged or cease to have effect.  I think Mr Dunning is correct that in such circumstances the onus lies with the bank to establish that its obligation is at an end.

It has wished to take the point that a notification was received from the favouree.  There is in evidence before the Court a document which has the appearance of being copy of one on the plaintiff's letterhead over the hand of Ms Teoh.  She is now Mrs McLaughlin.  The document is dated 8 July 2000 and addressed to the defendant.  It's headed "Bank Guarantee" and reads:

"PK Holdings could not locate the original of the bank guarantee and would like to advise that PK Holdings Pty Ltd has sold their property at 10..."

...

"Anton Street, Hemmant, Queensland, 4174.  PK Holdings has no further interest in the property occupied by Continental Cold Storage & Distributors Pty Ltd.  PK Holdings Pty Ltd has no further need for the bank guarantee facility with Continental Cold Storage & Distributors Pty Ltd."

No original of that document has ever been produced.  In particular, the copy was supplied to the bank by Continental Cold Storage & Distribution Pty Ltd which asserted to the bank, on being requested for something a little more persuasive, that all it ever had was a copy transmitted by facsimile.

I will just interrupt.  Has your client got the original bank guarantee now, Mr Dunning?

MR DUNNING:  Yes.

HIS HONOUR:  Okay.  I would like that exchange incorporated in the transcript. 

The commercial circumstances were that Continental Cold Storage & Distribution Pty Ltd which was a tenant of the plaintiff's premises had procured the bank guarantee in the plaintiff's favour as a security for performance of its obligations as "New Tenant".  The bank, as part of the arrangements for providing the bank guarantee, required the provision of security or equivalent by its client, the tenant,  which at that stage became anxious to obtain release by the bank of the security provided.

The plaintiff itself disposed of the premises to a company called Fortis Pty Ltd, completion occurring apparently on the 19th of December 2003.  The circumstances are referred to in the purported letter dated 8th of July 2004.

Disclosure seems not to have occurred in the proceeding yet, but the defendant bank has obtained and placed before the Court without any challenge from the plaintiff, part of the conditions of sale, being the following: 

"8.  Bank Guarantee

8.1  Acknowledgements
     The Purchaser acknowledges that:

(a)  the Tenant has provided a bank guarantee to the Vendor under the Lease;  and
(b)  the bank guarantee provided by the Tenant is non‑assignable by the beneficiary.

8.2  Post completion    

The Vendor and the Purchaser agree that:
(a)  from completion the Vendor shall hold the bank guarantee in accordance with the Lease for the benefit of the Purchaser;
(b)  if requested in writing by the Purchaser, the Vendor shall at the Purchaser's cost appoint the Purchaser as its attorney for the purpose of exercising the rights of the beneficiary under the bank guarantee;
(c)  the Purchaser warrants that it will only exercise any rights of the beneficiary under the bank guarantee in accordance with the Lease;
(d)  the Purchaser shall reimburse the Vendor for all costs incurred by the Vendor in enforcing the bank guarantee;  and
(e)  the Purchaser indemnifies the Vendor against all claims by the Tenant or any other person against the Vendor arising out of the enforcement of the bank guarantee."

The defendant argues that those arrangements amount to an assignment which would vitiate the bank guarantee having regard to the conditions set out in it in relation to non-assignability. That the defendant's argument is open is established by Smith v. The Perpetual Trustee Company Limited (1910) 11 CLR 149, in particular at 157 ff in the judgment of Griffith CJ. The passage referred to shows that a power of attorney may, in the right circumstances, operate as an assignment in equity.

It seems clear that, to an extent at least, any fruits of the bank guarantee were to be made over to Fortis and that it should have a very large measure of control in the situation.  An acknowledgment in Clause 8.1(b) of non-assignability is no doubt a pointer that assignment was not occurring or intended to occur, but in the circumstances I could not treat that as conclusive.

Subsequent events have confirmed the extent of Fortis' control of the situation.  Exhibit JP25 to Mr Pascoe's affidavit is a separate Power of Attorney dated 12th September 2005 whereby, inter alia:

"2.The Attorney shall reimburse the Grantor for all costs incurred by the Grantor in relation to enforcing the bank guarantee from Suncorp-Metway Limited in the amount of $195,622.44 dated 20 December 2002 ('the bank guarantee').  For the avoidance of doubt the Attorney shall be solely responsible for engaging all solicitors and barristers (as well as any other parties, including expert witnesses) as principal in relation to enforcing the bank guarantee, and for any and all costs incurred by it and the Grantor in relation to enforcing the bank guarantee, including all costs in relation to any Court proceedings entered into under this power of attorney, but excluding any costs incurred by the Grantor as a result of the Attorney's compliance with Recital 4 hereof.

3.The Attorney shall indemnify the Grantor against all claims made by Continental Cold Storage and Distribution Pty Ltd, Suncorp-Metway Limited or any other person against the Grantor arising out of the enforcement of the bank guarantee, including but not limited to any claim for costs in relation to any Court Proceeding."

The last document which should be recorded is the - is the one whereby the new tenant was introduced.  It is apparently dated 24 September 2003 and is entitled "Deed of Consent to Variation of Assignment of Lease". 

"12  BANK GUARANTEE

12.1At the same time that the New Tenant executes this Deed, it must give to the Landlord or the Landlord's nominated agent the bank guarantee set out in Item 8 as security for the performance of the New Tenant's obligations under this Deed.  The bank guarantee must be an unconditional bank guarantee (from a bank licensed under the Banking Act (Commonwealth) with no expiry date and in a form acceptable to the Landlord.

12.2If the New Tenant does not comply with its obligations under this Deed, the Landlord may use the bank guarantee to compensate the Landlord for loss or damage due to the New Tenant's breach.  The Landlord does not waive the New Tenant's breach by using the bank guarantee and no other rights of the Landlord arising from that breach are affected."

The significance attached to those provisions by Mr Sullivan for the defendant is that the demand for payment of the full amount of the bank guarantee is challengeable on two bases.  The first is that only the original landlord's loss and damage or the amount of it may be demanded not the amount of any loss of damage that Fortis or any successor landlord may have suffered. 

The other aspect, according to Mr Sullivan, is that the quantum of any liability pursuant to the bank guarantee is limited to the actual quantum of such loss or damage, that demanding the full face value of the guarantee may not be appropriate.  As a matter of history, lower amounts have been demanded - leading the defendant to be suspicious about the demand it now faces.  Oddly, when a demand in a more limited amount was formerly made and the role of Fortis was disclosed - indeed it was acting as attorney in the name of the plaintiff - the defendant did not take the point which it now takes in relation to the putative assignment.  Rather, it suggested a means by which the situation could be dealt with.  If I am correct, that involved payment of some moneys and the provision of a new bank guarantee in a smaller amount on surrender of the original one.

I note the defendant's change of stance because another aspect of the matter is what the defendant asserts is a change of stance by the plaintiff and Ms Teoh, in particular, in relation to the letter of 8th of July.  Although it seems to be the case that Ms Teoh exercised secretarial or like functions within the plaintiff, responsibility for decisions residing in persons higher placed than she was, affidavits from them indicate that at no time did they give instructions for the release of the bank guarantee

There is evidence available that when conversations occurred 10 weeks or so after the 8th of July, Ms Teoh did not disavow the letter on being informed of it.  Indeed, she may have indicated that she had made some mistake when (or if) she sent it.

She may well have done that without the opportunity to see the document, and she is now, in her affidavit, much stronger in denying that the document is hers.  The situation in relation to that letter is, as the evidence stands, rather difficult for the bank.  It will hardly be able to rely on a forgery which is what the plaintiff says is all it has.  For the moment, although the defendant has what appears to be a copy of the letter, it has no evidence that the apparent signature of Ms Teoh is genuine.

As Mr Dunning says, it is not a promising basis for proceeding to trial but there is a possibility Ms Teoh's evidence might change.  Nonetheless, I think there is a possibility that cannot be wholly disregarded that the defendant at a trial might be able to make something of the letter. 

This is one of the aspects in which the defendant's position is stronger having regard to this being an application under Rule 292 rather than a trial.

The evidence available might change in respect of the assignment which the defendant wishes to submit occurred.  Mr Sullivan argues that whether there was an assignment may well be something that depends on the intention of the parties. 

The circumstances may be such that evidence at trial has a bearing on that issue even if, as may be the case, individuals are not permitted to give evidence of what they intended.

The evidence may well reveal more of the factual matrix forming the commercial background. 

In respect of the point to do with identity of the entity whose loss or damage may be included in a demand and the appropriate quantum, it seems to me there is also what used to be called a triable issue. 
Mr Sullivan has identified that in terms of the possibly overdramatic description of fraud, for reasons which appear if one looks at a case about a letter of credit (rather than a bank guarantee), The Society of Lloyds v Canadian Imperial Bank of Commerce and Ors, [1993] 2 Lloyds Law Reports 579 at 580, but also Hortico, and Wood Hall.

It is enough to indicate my view that the plaintiff has failed to satisfy me comfortably of what it must, under paragraphs (a) and (b) of Rule 292(2), albeit by a rather narrow margin.  It is appropriate to deal on a global basis with Mr Sullivan's points, rather than determine them in isolation.  In these circumstances, I consider they gain strength from their number.  In other circumstances, multiplicity of "points" may indicate that a defendant is desperate.

The application is therefore refused, given the circumstances which I have described at length.

My inclination would be to order that costs be costs in the cause.  Although the defendant succeeds today, it seems to me such a strong thing for a banking institution to disavow an instrument such as the current bank guarantee, that the bank's entitlement to costs should depend on its persuading a Judge at trial that that is the right outcome. 

I also want to say that views expressed by me on this Rule 292 application are in no way binding on a Trial Judge and would not commit him or her in any respect at all. 
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HIS HONOUR:  The application is refused.  The costs to be both parties' costs in the cause. 

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