Reliance Capital Pty Ltd v Caratti [No 7]
[2024] WASC 33
•13 FEBRUARY 2024
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS
CITATION: RELIANCE CAPITAL PTY LTD -v- CARATTI [No 7] [2024] WASC 33
CORAM: LUNDBERG J
HEARD: 8 FEBRUARY 2024
DELIVERED : 12 FEBRUARY 2024
PUBLISHED : 13 FEBRUARY 2024
FILE NO/S: CIV 2283 of 2021
BETWEEN: WALTHAMSTOW PTY LTD
Plaintiff
AND
ALLEN BRUCE CARATTI
First Defendant
TINA MICHELLE BAZZO
Second Defendant
FILE NO/S: CIV 3136 of 2019
BETWEEN: WALTHAMSTOW PTY LTD
Plaintiff
AND
ALLEN BRUCE CARATTI
First Defendant
TINA MICHELLE BAZZO
Second Defendant
Catchwords:
Practice and procedure - Application by defendants to re-open an issue argued on day 3 of trial - Application confined to contention as to whether the liability of the guarantors extended beyond 29 February 2016 - Importance of the contention to the defendants' position in the litigation - Consideration of the pleadings as a whole to ascertain issues fairly arising prior to trial - Case management issues - Potential prejudice to the plaintiff and delay and disruption to the trial process - Turns on own facts
Legislation:
Rules of the Supreme Court 1971 (WA), O 1 r 4A, O 1 r 4B
Result:
Defendants' application dismissed
Category: B
Representation:
CIV 2283 of 2021
Counsel:
| Plaintiff | : | R J S French & A J Tharby |
| First Defendant | : | Dr J T Schoombee & A P Rumsley |
| Second Defendant | : | Dr J T Schoombee & A P Rumsley |
Solicitors:
| Plaintiff | : | Bennett |
| First Defendant | : | Alan Rumsley |
| Second Defendant | : | Alan Rumsley |
CIV 3136 of 2019
Counsel:
| Plaintiff | : | R J S French and A J Tharby |
| First Defendant | : | Dr J T Schoombee & A P Rumsley |
| Second Defendant | : | Dr J T Schoombee & A P Rumsley |
Solicitors:
| Plaintiff | : | Bennett |
| First Defendant | : | Alan Rumsley |
| Second Defendant | : | Alan Rumsley |
Case(s) referred to in decision(s):
Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175
Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303
McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457
Reliance Capital Pty Ltd v Caratti [No 6] [2024] WASC 21
Table of Contents
A. Introduction
B. The defendants’ contention
C. The nature of a guarantor’s liability
D. Relevant pleadings
E. Disposition
F. Conclusion
LUNDBERG J:
(These reasons were delivered ex temporaneously on 12 February 2023 and have been edited from transcript to correct matters of grammar, add headings, and include complete references.)
A. Introduction
These reasons concern the renewed application made by the defendants following the making of my rulings on 1 February 2024, which I clarified on 2 February 2024, and which were the subject of written reasons on 5 February 2024.[1] These reasons should be read together with those earlier written reasons.
[1] Reliance Capital Pty Ltd v Caratti [No 6] [2024] WASC 21.
The defendants' renewed application was confined to only one aspect of those earlier rulings, namely the argument concerning [17] of the Fourth Amended Defence in CIV 3136 of 2019. That is addressed in [25] to [44] of my earlier reasons. The other matters addressed in my written reasons have not been re‑agitated.
I permitted the defendants an opportunity to make submissions as to whether I should revisit or reopen the argument which was heard on 31 January 2024, and whether I should, in effect, vary or discharge my earlier procedural rulings. I received written submissions from the defendants in this regard dated 7 February 2024 and heard oral argument on 8 February 2024.
B. The defendants’ contention
More precisely, the argument concerned, not the gap argument relating to the period between October 2015 and February 2016, but rather the asserted failure by the plaintiff to plead any extension of the underlying loan facility beyond 29 February 2016 either at all, or specifically in relation to Mr Allen Caratti as guarantor. That is, the focus was upon the adequacy of the plaintiff's statement of claim rather than an attempt to re‑open the amendment to the Fourth Amended Defence which I had refused.
As counsel indicated during argument, the focus of the challenge is on the position of Mr Caratti, not Ms Tina Bazzo, although counsel also outlined the arguments which concern Ms Bazzo's liability beyond 2017.
As a preliminary matter, I should make clear that I did not regard the defendants' counsel as seeking to cavil with the prior ruling. As I have made clear, I recognise the issue is one of importance to the defendants, I recognise the issue has arisen late in the proceedings, and counsel was seeking to fully ventilate the contention which had been developed. This extends beyond the gap argument (which is the focus of my reasons delivered on 5 February) to embrace, as I have said, the asserted failure by the plaintiff to plead any extension of the underlying loan facility beyond February 2016.
Particular emphasis is placed by the defendants on the document which is Exhibit D5. That is a letter from the plaintiff addressed to the borrower dated 29 February 2016. It states that the plaintiff as the lender is agreeable to the borrower's request to extend the term of the loan for a period of two years, through until 31 October 2017. Mr Caratti appears to sign that document, agreeing to and accepting the extension terms, on behalf of Herdsman Technology Pty Ltd. In contrast, it is noted that Ms Bazzo signs on her own behalf. The defendants seek to raise an argument as to the effect of Mr Caratti's signature on the document.
The defendants refer to a later document as well, which is Exhibit D8. That is a letter dated 24 October 2017 (which I understand is in substance the same as Exhibits D6 and D7, with some minor differences). The letter is from the plaintiff lender to the borrower and proposes an extension of the loan facility until 31 October 2019. It is countersigned by the borrower and the two remaining guarantors to the Deed of Guarantee which is Exhibit 103, namely Ms Bazzo and Byford Land Company Pty Ltd. It is not signed by Mr Caratti, nor was there space for him to do so.
Counsel for the defendants submitted:[2]
But our main point is, accepting that everybody, Mr Caratti as well, was bound on 29 February 2016. He could not, as a … guarantor, be liable after that date, unless he had agreed to a further extension. That must be so, because the … execution of … the transfer document … exhibit 101, does not contain any extension … beyond 29 February 2016. There is no further reference. It stops at that date.
[2] ts 1426.
The pleadings in the action, on both sides, make no reference to any of these matters. In hindsight, that is somewhat curious, but explicable by the late revelation of various documents, including Exhibits D5 and D8.
C. The nature of a guarantor’s liability
Of course, it must be accepted as an orthodox principle that a party's liability as a guarantor is co‑extensive with the liability of the principal debtor.
A guarantee will ordinarily be discharged if the debtor performs their obligations under the principal contract, and may be discharged by agreement, by expiry, or indeed by being revoked. The principle is identified in the leading text book on guarantees.[3] A guarantee may also be discharged by matters which occur between the creditor and the debtor.
[3] O'Donovan and Phillips, The Modern Contract of Guarantee (4th ed, 2020) [6.200].
As liability under a guarantee depends upon the existence and validity of, and extent of, liability under a principal contract between the creditor and debtor, if for any reason the debtor is not liable, the guarantor will similarly not be liable. I refer in this regard to the oft‑cited decision of the High Court in McDonald v Dennys Lascelles Ltd[4] and to the observations of Starke J at 471, and of Dixon J (as his Honour then was) at 479 ‑ 480.
[4] McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457.
D. Relevant pleadings
The extent of the pleading, insofar as the Amended Statement of Claim (ASOC) is concerned, is that the plaintiff pleads an extension of the loan facility in [17]. This is an extension effected by agreement in 2014, which takes the loan facility beyond the initial 12‑month period, which was from 31 October 2013 to 31 October 2014, through to 31 October 2015. It is referred to as the Variation and Extension Agreement.
The pleading, again insofar as the ASOC is concerned, pleads the terms and effect of instruments which take the chronology up to 29 February 2016. The focus of the pleading in this respect is on the assignment of the loan agreement, the variation and extension agreement entered into in 2014, the mortgage, and the additional securities.
Paragraph 21 of the ASOC pleads as follows:
On 29 February 2016, in consideration of the payment of the sum of $2,683,020.33, Angas Securities agreed to assign all its right, title and interest in the Loan Agreement, the Variation and Extension Agreement, the Mortgage and the Collateral security agreement (collectively, 'the Securities') to the plaintiff.
Particulars
The agreement to assign the Securities was contained in a deed of assignment duly executed by the parties including the defendants as guarantors on 29 February 2016 ('Assignment Deed'). [EX-0101]
Paragraph 22 of the ASOC pleads as follows:
GH1 Pty Ltd and the defendants as guarantors consented to the assignment of the Securities and agreed:
(a) To be bound for the due payment and performance of its obligations and liabilities referred to in the Securities; and
(b) That the outstanding amount under the Securities was the sum of $2,683,020.33 as at 29 February 2016 (clause 8 Assignment Deed).
Paragraph 26 of the ASOC plead as follows:
On 29 February 2016, the plaintiff and the second defendant, Herdsman Technology Pty Ltd ('Herdsman Technology') and Byford Land Company Pty Ltd ('Byford Land') as guarantors and GH1 Pty Ltd entered into a deed of guarantee dated 29 February 2016 ('the Deed of Guarantee'). [EX‑0103]
Paragraph 27 of the ASOC pleads as follows:
By the Deed of Guarantee, the guarantors jointly and severally guaranteed:
(a)The due and punctual payment of all monies owed or payable by GH1 Pty Ltd to the plaintiff under the Securities and the Assignment Deed (clause 2.1.1, Schedule Deed of Guarantee);
(b)Payment of such monies immediately on demand should GH1 Pty Ltd default in the payment of such monies (clause 2.1.1);
(c)The due and punctual performance by GH1 Pty Ltd of its obligations under the Securities and the Assignment Deed (clause 2.1.2);
(d)To indemnify and keep indemnified the plaintiff against all losses, damages, costs, and expenses which may be incurred by reason of the default of GH1 Pty Ltd (clause 2.1.2).
Paragraph 28 of the ASOC pleads as follows:
The plaintiff was entitled to demand and receive payment from the guarantors when any payment was due and was not required to proceed against GH1 Pty Ltd or exhaust any remedies it may have against GH1 Pty Ltd before doing so (clause 3.1 Deed of Guarantee).
I refer also to [29] and [30] of the ASOC, but need not repeat their terms.
By [31] and [32] of the ASOC, the plaintiff pleads reference to the borrower's failure to make interest payments under the Loan Agreement and the issuing of a default notice to the second defendant (Ms Bazzo) on 20 September 2018 under the Loan Agreement. I emphasise here the reference is to the Loan Agreement, being the 2013 instrument.
By [37] of the ASOC, the plaintiff pleads reference to the demand against the first defendant (Mr Caratti) pursuant to the terms of the guarantee contained in the Loan Agreement. I emphasise here, once again, the reference is to the Loan Agreement, being the 2013 instrument.
The claims against the guarantors in this action, that is both defendants, is made apparent from the ASOC as being in respect of the liabilities and obligations which arose under the Loan Agreement dated 18 November 2013, which was subsequently assigned in February 2016 to the plaintiff. The amounts claimed against the guarantors, as appears from Annexure A, run from the initial advance in February 2016 (being the assignment date) through to December 2019, with a claim for daily interest thereafter at $2,587.60 per day. The annexure includes amounts received by the plaintiff to the credit of the borrower (and the guarantors) in September 2017.
Thus the pleaded claim against the guarantors is for amounts due to be paid under the Loan Agreement, which it is alleged were not paid, well beyond February 2016. It cannot have been lost on any of the legal advisers, on either side of the litigation, that the claims made against the guarantors, Mr Caratti and Ms Bazzo, extend beyond this date and put in issue their liability for the matters stretching over a period of some four years.
The Fourth Amended Defence addresses the assignment of the Loan Agreement, and its extension beyond 31 October 2015, in a very specific manner. In [21.1], the defendants plead, and have pleaded for some time in the proceedings, that the extension of the term of the Loan Agreement beyond 31 October 2015 would have discharged the guarantee unless the defendants consented to the assignment to the plaintiff. It is then pleaded that consent was in fact given, but only by reason of a representation alleged to have been made by Mr Masel for the plaintiff, being the Enforcement Representation.
I will refer to the Fourth Amended Defence but I recognise a further defence has now been filed. The Fourth Amended Defence was the pleading on foot prior to the commencement of the trial.
The defendants expressly plead their consent to the assignment, subject to the representation, in [21.4], [21.5], [21.6], and [28.1] of the Fourth Amended Defence.
There are further admissions made by the defendants in the Fourth Amended Defence which are relevant. I refer to [22], which admits [22(a)] of the ASOC, which is the allegation that the defendants as guarantors consented to the assignment of the securities and agreed to be bound for the due payment and performance of its obligations and liabilities referred to in the Securities. The term Securities is defined in the ASOC to encompass the Loan Agreement. These matters are also agreed facts in the Statement of Agreed Facts at [21] thereof (now Exhibit D1).
The remaining defence employs a structure or architecture of denying liability by reference back to the matters pleaded in [21], [24] and [28]. Paragraphs 21 and 28 plead the representation and estoppel defence. The reference to [24] may well be in error.
The plaintiff's reply denies [21.1] of the Fourth Amended Defence and in effect recognises the manner in which the defendants had pleaded out the consent issue. The plaintiff addresses the consent issue by pleading (in [10(b)]) that the defendants had consented to the assignment of the Loan Agreement (and thereby the extension beyond 31 October 2015) on 29 February 2016, through the Assignment Deed, which is Exhibit 101. Clauses 3, 8 and 13 of the Assignment Deed are expressly pleaded.
More fundamentally, the reply pleads that, absent consent to the assignment of the Loan Agreement by the defendants, the guarantees would not have been discharged given the terms of the Loan Agreement pleaded at [10(aa)] and [10(bb)] of the reply.
Further still, the plaintiff pleads at [10(a)] of the reply that it was Mr Caratti who proposed the assignment (and thereby the extension) of the Loan Agreement, including the extension of the guarantee within the Loan Agreement. I don’t make any finding in this respect. I simply note the allegation.
None of these matters are addressed in the defendants' rejoinder. The rejoinder addresses the matters dealt with in [29] of the reply as to the Waverley Estates settlement issue, which had been introduced in 2023 to the proceedings through an amendment to the defence (at [39] thereof). The facts concerning the Waverley Estates settlement took place between about June 2016 and February 2017, which is not an unimportant aspect of the analysis.
E. Disposition
In my view, it is plain that the pleadings, prior to the trial of the action, raised the extension issue (that is, the extension of the underlying Loan Agreement beyond 31 October 2015). The battleground in this regard, as emerges from the pleadings, is that the extension beyond 31 October 2015 was to be challenged by the defendants at the listed trial of this action by reference only to the estoppel representation defence.
There was no plea that the extension beyond 29 February 2016 was for some other reason invalid.
The absence of an express plea in the ASOC as to the extension of the Loan Agreement beyond 29 February 2016, or again in 2017 and beyond, was not challenged by the defendants in the interlocutory phases of the action, such as through a strike‑out application or defendants' summary judgment application. Rather, the absence of such express pleas was tackled by the defendants through the estoppel representation plea. That was the marker laid down in the pleadings by the defendants.
To put that another way, the absence of an express plea by the plaintiff that the Loan Agreement was the subject of an express extension in writing beyond 31 October 2015, beyond 29 February 2016, or beyond any later date, is not a new issue that has emerged. That has always been apparent on the pleading. As I have said, it cannot have been lost on any of the legal advisers on either side that the claims extended to the period after February 2016.
What has occurred is that specific documents which on their face concern the extension in late 2015 and early 2016, and again it seems in October 2017, have belatedly emerged. Those documents, which include Exhibits D5 and D8, were discovered by the defendants in mid‑November 2023 following the strategic conference held before me on 8 November 2023 (for which both parties prepared an agenda). Comprehensive directions were made by me at the conclusion of the strategic conference to accommodate the orderly management of the action through to trial.
I note that my reasons on 5 February 2024 erroneously record the new documents relied upon by the defendants as being discovered by the plaintiff, but that was in error. It was the defendants who produced the documents in mid‑November, apparently in bundles, as appears from the affidavit evidence adduced. The defendants did not appreciate the apparent significance of the documents until the night before the trial began. Further, the plaintiff does not apparently have copies of the documents in its possession, having made searches. I do not need to make a finding in this regard. It is sufficient to note that the documents were in the possession of the defendants prior to mid‑November 2023 (because the defendants discovered them), they were then in the possession of the defendants' solicitors at some point shortly before mid‑November 2023 when they were discovered, and the plaintiff received them from the defendants through discovery in mid‑November 2023.
I recognise that the assessment of the new material by the defendants' counsel has caused him to reflect on the matters raised on the pleadings. I accept this has occurred late in the day. I observe that these issues were not raised in the defendants' written opening submissions filed on 19 January 2024. Those submissions, and the plaintiff's opening submissions received the week before, explore the issues raised on the pleaded cases, and there was no indication of any challenge to the extension in the manner which is now sought to be raised.
I must accept, I think, that the defendants' new contention as to the validity of any extension of the underlying Loan Agreement beyond 29 February 2016 is at least arguable. It is also possible, I accept, that had the pleader of the statement of claim had before him or her the newly discovered documents, the pleading itself might have been approached in a different manner.
However, it remains the case that the extension of the Loan Agreement beyond 31 October 2015 was raised in the pleadings prior to trial. I have outlined how that is so already. It is not a new issue. A defendant guarantor is entitled to meet the case against them in any way they see fit, by raising such legal and factual defences as may be reasonably open. A defendant guarantor may also choose to pursue interlocutory challenges to the claim against them, such as strike‑out applications or summary judgment applications, as I have mentioned. The defendants here did not do so. Instead, the defendants elected to fight the case on particular bases.
Further, I have already addressed in my earlier reasons the course of the litigation over the last year, including the listing of the trial in March 2013 and the making of trial directions at that time. I have previously addressed the decision I made to vacate the trial which had been listed for November. I have previously identified the frequency and intensity of the interlocutory debates in this action which occupied a considerable amount of court time between September and December 2023, including a directions hearing on 22 November 2023 in respect of which the court prepared and circulated to the parties an agenda for the hearing, including the opportunity for either party to raise any other directions or orders they wished. As I have noted, the parties' pleadings have been dissected and evaluated in an intensive fashion over the last five months or so.
All of those circumstances (including the vacating of earlier trial dates) reasonably mean that the court is entitled to assume that the litigants to the dispute, and those who advise them, have taken the proper steps to ensure matters are ready for trial. It is regrettable that the defendants did not discover these documents until after the strategic conference (and I reiterate there is no cogent explanation for this delay) and even more regrettable that the apparent significance of the documents did not emerge until so late in the day. Indeed, it could hardly have been later.
The new material has brought a renewed focus on the extension issues on the part of the defendants. The question for the court, and one in respect of which I have given some anxious consideration, is whether these new arguments should be permitted to be raised in the present trial. The result of allowing these new issues to be ventilated is that the trial will not complete in the allotted time (which has already been extended to allow for argument on this issue) and the parties will need to be given appropriate time to file further evidence and submissions in relation to these matters. There may be fresh interlocutory applications to be filed as well, as to discovery and pleading amendments. The plaintiff has foreshadowed that any challenge to the extension of the Loan Agreement will require the plaintiff to respond thereto by reference to the conduct of the parties over the period from early 2016 and beyond. That is a period of around four years, up to the commencement of the litigation in late 2019.
Some of this conduct is already pleaded and evidence has been filed in relation thereto (although not by express reference to any of the new extension arguments). But I infer from the plaintiff's submissions that more remains to be evaluated and pleaded, and then addressed in evidence. I can also discern from the affidavit relied upon by the plaintiff in opposing the amendments last week that there are further exchanges between the plaintiff and Mr Caratti in October and November 2017 which would need to be explicated in the evidence of the parties.[5] The affidavit also highlights the potential need for evidence as to oral conversations between Mr Masel and Mr Caratti to be adduced.
[5] Affidavit of Samuel Neil Howieson affirmed 31 January 2024.
The anxious consideration I have given to the issues has required an assessment of the asserted importance of these issues to the defendants' position, cast against the goal and objects in O 1 r 4A and r 4B of the Rules of the Supreme Court 1971 (WA), and the statements of the High Court to which I referred in my earlier rulings.[6] Those statements are well known to trial judges, and are applied regularly. Of course, the authority of Aon Risk is not a one size fits all case. The various factors identified by the court must be weighed, individually and in combination.
[6] Aon Risk Services Australia Ltd v Australian National University [2009] HCA 27; (2009) 239 CLR 175 [111] (Gummow, Hayne, Crennan, Kiefel and Bell JJ), and [137] (Heydon J); Expense Reduction Analysts Group Pty Ltd v Armstrong Strategic Management and Marketing Pty Ltd [2013] HCA 46; (2013) 250 CLR 303 [51].
As I have said, I recognise the issues raised by the defendants are important to its position, and that the legal advisers to the defendants did not identify the importance until late in the day.
However, consistently with my earlier ruling, I remain of the view that the circumstances of this litigation over the past several months, which includes the holding of a strategic conference to ensure all issues were properly identified and the case was ready for trial, the lack of a cogent explanation for the late discovery of the issues and for the significance of the issues emerging so late, the consequences for the orderly management of the trial process and the necessity to adjourn the trial part heard to ensure procedural fairness to the plaintiff, are all factors which when weighed in the balance, reinforce the position I took in the first week of trial in response to these issues.
That is to say, I am not persuaded I should re‑open the argument on these matters. Even if I was so persuaded, particularly to ensure I have fully considered the extension arguments articulated by counsel, which are broader than the gap argument I focused on in my earlier ruling, I would have reached the same ultimate conclusion that the new issues raised by the defendants to challenge the enforceability of the guarantees by reason of the extension of the Loan Agreement beyond February 2016 (in relation to either Mr Caratti or Ms Bazzo) should not be permitted. The raising of these issues will cause prejudice to the plaintiff and require the trial to be adjourned and thus delayed. If the trial was so adjourned, the costs incurred and thrown away by the plaintiff would most likely be the subject of an order that those costs be met by the defendants. Of course, it is no longer the approach of Australian courts to allow arguable issues to be raised subject only to the price that the opposing party's prejudice be overcome by the payment of their costs. That is an outdated position.
Further, as the plurality of the High Court observed in Aon Risk, to say that case management principles should only be applied 'in extreme circumstances' to refuse an amendment implies that considerations such as delay and costs can never be as important as the raising of an arguable case; and it denies the wider effects of delay upon others.[7] There is no right to amendment to raise issues. The guiding principle is to obtain a just resolution of the dispute taking into account the recognition contained in modern case management principles of the need for litigation to be conducted in accordance with positive case flow management objectives.
[7] Aon Risk Services Australia Ltd v Australian National University [95].
To be clear, although the defendants do not agitate a specific amendment to their pleading, and the plaintiff does not propose to amend its pleading, I approach the present issue on the basis that it will be necessary for the extension argument to be articulated by the defendants in its defence in some way, and for the plaintiff to then reply thereto. The issue must be grounded in some way in the parties' pleadings.
Given the point this litigation has reached, in which the parties find themselves in the midst of a second listed trial of the action, the circumstances are such that the considerations identified by the High Court in Aon Risk and Expense Reduction Analysts Group have acute impact on the parties and, in a wider sense, on the administration of justice including other litigants before this court.
F. Conclusion
For these reasons, I am of the view that the defendants ought not be permitted to introduce into action CIV 3136 of 2019 the fresh contentions as to the extension arguments.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
LM
Associate to the Honourable Justice Lundberg
13 FEBRUARY 2024
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