Scott & ors v Partnership Pacific Limited
[1993] QCA 181
•21 May 1993
IN THE COURT OF APPEAL [1993] QCA 181
SUPREME COURT OF QUEENSLAND
No. 4149 of 1989
Brisbane
[Scott & ors. v. Partnership Pacific Limited]
BETWEEN:
GRAEME ERIC SCOTT
First Appellant
(First Defendant)
- and -
GARY EDWARD ANGOVE
Second Appellant
(Second Defendant)
- and -
JOHN CHARLES BINGHAM
Third Appellant
(Third Defendant)
- and_
DONALD JAMES BLAIR
Fourth Appellant
(Fourth Defendant)
- and -
DESMOND BOYCE
Fifth Appellant
(Fifth Defendant)
- and -
LAWRENCE ARTHUR COOK
Sixth Appellant
(Sixth Defendant)
- and -
STEPHEN JOHN FOSTER
Seventh Appellant
(Seventh Defendant)
- and -
DALTON LESLIE GOODING
Eighth Appellant
(Eighth Defendant)
- and -
DAVID EDWARD HYDE
Ninth Appellant
(Ninth Defendant)
- and -
KEVIN GUSTAV KARLSON
Tenth Appellant
(Tenth Defendant)
- and -
G. LESLIE KEYS
Eleventh Appellant
(Eleventh Defendant)
- and -
DAVID GEORGE KILPATRICK
Twelfth Appellant
(Twelfth Defendant)
- and -
PETER GEOFFREY LARK
Thirteenth Appellant
(Thirteenth Defendant)
- and -
IAN WILLIAM LYON
Fourteenth Appellant
(Fourteenth Defendant)
- and -
ANTHONY ROYSTON HYDE
Fifteenth Appellant
(Fifteenth Defendant)
- and -
ROBERT POULINET
Sixteenth Appellant
(Sixteenth Defendant)
- and -
CHRISTOPHER JOHN CAREY
Seventeenth Appellant
(Seventeenth Defendant)
- and -
RONALD BEVAN SHARPE
Eighteenth Appellant
(Eighteen Defendant)
- and -
PHILIP JOHN EDMONSON
Nineteenth Appellant
(Nineteenth Defendant)
- and -
SYDNEY GEORGE WALDRON TAYLOR
Twentieth Appellant
(Twentieth Defendant)
- and -
CORNELIUS JAN VAN MAANEN
Twenty-first Appellant
(Twenty-first Defendant)
- and -
GORDON ALFRED ANGUS
Twenty-second Appellant
(Twenty-second Defendant)
- and -
VIVIAN SAMUEL HALL
Twenty-third Appellant
(Twenty-third Defendant)
- and -
GEOFFREY CHARLES GREEN
Twenty-fourth Appellant
(Twenty-fourth Defendant)
- and -
JOHN ANTHONY SCOTT
Twenty-fifth Appellant
(Twenty-fifth Defendant)
- and -
DENNIS ALFRED YEWERS
Twenty-sixth Appellant
(Twenty-sixth Defendant)
- and -
ROBERT EDWARD CORBETT
Twenty-seventh Appellant
(Twenty-seventh Defendant)
- and -
DENNIS JAMES MAGUIRE
Twenty-eighth Appellant
(Twenty-eighth Defendant)
- AND -
PARTNERSHIP PACIFIC LIMITED
Respondent
(Plaintiff)
THE CHIEF JUSTICE
DAVIES J.A.
BYRNE J.
Judgment delivered 21/05/1993
REASONS FOR JUDGMENT - THE COURT
APPEAL DISMISSED WITH COSTS.
CATCHWORDS: GUARANTEE AND INDEMNITY - CONSTRUCTION AND EFFECT - whether guarantor entitled by reason of fulfilment of condition of guarantee to final discharge - whether gold reserves "proven to the creditor to be of a quantity and quality which are in the creditor's sole opinion suitable in all respects for the creditor's security purposes" - consideration of personal character of guarantors irrelevant - whether creditor satisfied realisable value of reserves sufficient for its security purposes to replace guarantee
Counsel:H.G. Fryberg Q.C. with him G.J. Robinson for the Appellant, Angus
I. Skinner for the remaining Appellants
P. Morrison Q.C. with him J. McKenna for the Respondent
Solicitors:Sly & Weigall Cannan & Peterson for the Appellant, Angus
John M. O'Connor & Company for the remaining Appellants
Feez Ruthning for the Respondent
Hearing Date(s): 11/12 February 1993
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
No. 4149 of 1989
Brisbane
BeforeThe Chief Justice
Mr Justice Davies
Mr Justice Byrne
[Scott & ors. v. Partnership Pacific Limited]
BETWEEN:
GRAEME ERIC SCOTT
First Appellant
(First Defendant)
- and -
GARY EDWARD ANGOVE
Second Appellant
(Second Defendant)
- and -
JOHN CHARLES BINGHAM
Third Appellant
(Third Defendant)
- and -
DONALD JAMES BLAIR
Fourth Appellant
(Fourth Defendant)
- and -
DESMOND BOYCE
Fifth Appellant
(Fifth Defendant)
- and -
LAWRENCE ARTHUR COOK
Sixth Appellant
(Sixth Defendant)
- and -
STEPHEN JOHN FOSTER
Seventh Appellant
(Seventh Defendant)
- and -
DALTON LESLIE GOODING
Eighth Appellant
(Eighth Defendant)
- and -
DAVID EDWARD HYDE
Ninth Appellant
(Ninth Defendant)
- and -
KEVIN GUSTAV KARLSON
Tenth Appellant
(Tenth Defendant)
- and -
G. LESLIE KEYS
Eleventh Appellant
(Eleventh Defendant)
- and -
DAVID GEORGE KILPATRICK
Twelfth Appellant
(Twelfth Defendant)
- and -
PETER GEOFFREY LARK
Thirteenth Appellant
(Thirteenth Defendant)
- and -
IAN WILLIAM LYON
Fourteenth Appellant
(Fourteenth Defendant)
- and -
ANTHONY ROYSTON HYDE
Fifteenth Appellant
(Fifteenth Defendant)
- and -
ROBERT POULINET
Sixteenth Appellant
(Sixteenth Defendant)
- and -
CHRISTOPHER JOHN CAREY
Seventeenth Appellant
(Seventeenth Defendant)
- and -
RONALD BEVAN SHARPE
Eighteenth Appellant
(Eighteen Defendant)
- and -
PHILIP JOHN EDMONSON
Nineteenth Appellant
(Nineteenth Defendant)
- and -
SYDNEY GEORGE WALDRON TAYLOR
Twentieth Appellant
(Twentieth Defendant)
- and -
CORNELIUS JAN VAN MAANEN
Twenty-first Appellant
(Twenty-first Defendant)
- and -
GORDON ALFRED ANGUS
Twenty-second Appellant
(Twenty-second Defendant)
- and -
VIVIAN SAMUEL HALL
Twenty-third Appellant
(Twenty-third Defendant)
- and -
GEOFFREY CHARLES GREEN
Twenty-fourth Appellant
(Twenty-fourth Defendant)
- and -
JOHN ANTHONY SCOTT
Twenty-fifth Appellant
(Twenty-fifth Defendant)
- and -
DENNIS ALFRED YEWERS
Twenty-sixth Appellant
(Twenty-sixth Defendant)
- and -
ROBERT EDWARD CORBETT
Twenty-seventh Appellant
(Twenty-seventh Defendant)
- and -
DENNIS JAMES MAGUIRE
Twenty-eighth Appellant
(Twenty-eighth Defendant)
AND:
PARTNERSHIP PACIFIC LIMITED
Respondent
(Plaintiff)
REASONS FOR JUDGMENT - THE COURT
Judgment delivered 21/05/1993
The appellant, Gordon Alfred Angus, was one of 28 guarantors under a deed of guarantee dated 11 September 1988 in favour of the respondent, Partnership Pacific Limited, which sued each of them upon that guarantee. It obtained judgment in the action against 27 of them, all of whom appealed against that judgment. However, only one, Mr Angus, has pursued his appeal before us, the other appeals having been dismissed by consent.
The appellant was, with 25 former appellants, the beneficiary of a trust, the trustee of which was Service Nominees (W.A.) Pty Ltd. That trustee, together with trustees for each of the other guarantors, purchased the Dittmer gold mine near Proserpine in 1987. In 1988 they agreed to sell a one-half interest in that mine to Provest Limited ("Provest"). It was to secure a loan to Provest to enable it, inter alia, to purchase that interest, that the guarantee was given. The guarantee secured a maximum amount of $1.5m.
It was common ground before us that the sole question in this appeal concerned the interpretation of cl. 31(a) of the deed of guarantee. Clause 31 provided:
"Notwithstanding any other provision to the contrary herein contained, if:-
(a)the gold reserves of the Dittmer Gold Mine (being the mine the subject of Mining Leases Nos. 380, 381, 382, 387, 388, 389, 390 and 621, and Mining Lease Applications Nos. 622 and 637 in the Bowen Mining District in the State of Queensland) are subsequently proven to the Creditor to be of a quantity and quality which are in the Creditor's sole opinion suitable in all respects for the Creditor's security purposes and the Creditor has alternative security acceptable to the Creditor over the Debtor's interest in such reserves and/or the proceeds therefrom; or
(b)the principal amount outstanding to the Creditor under the Loan Facility Agreement dated the 21st day of September 1988 has been reduced by principal repayments to the Creditor aggregating not less than $1,550,000.00,
THEN the Guarantor shall be entitled to a final discharge of this Guarantee."
That question is whether in the events referred to below, which were not disputed before us, "the Guarantor" (which included the appellant) became entitled by reason of fulfilment of the conditions stated in cl. 31(a) by 11 November 1988, to a final discharge of the guarantee. The appellants did not seek a discharge of the guarantee until, at the earliest, 2 March 1989 but it was not asserted by the respondent that anything turned on that.
The above loan to Provest was made pursuant to the terms of a loan facility agreement dated 21 September 1988. It was for the amount of $5.5m which was lent that day. A document dated 24 August 1988, described as a supported credit variation application, the approval of which resulted in the loan, listed the security which was to secure the loan. It included the mine but at a "nil" value for security purposes because, it was said, "Value of mine is not able to be satisfactorily determined at this point in time until further drilling is undertaken".
Shortly after that loan was made Provest applied to the respondent to borrow a further $2.5m to enable it to buy an ore crushing plant. Although apparently drilling had not taken place sufficiently to determine the value generally of reserves in the mine, a credit variation, dated 24 October 1988, in which Messrs Anderson and Lummis of the respondent recommended a loan of this amount, stated that Provest had proven the value of surface dumps, tailings, dams and some underground pillars at $10.245m; and that they estimated the cost of extraction at one-half of that, leaving a net value for security purposes of $5.122m.
By a letter dated 28 October 1988 the respondent approved this loan, one of the conditions of that approval being that Provest would assign or charge the proceeds of gold sold forward under either a price protection plan or a forward selling plan with a major bullion dealer. It was plain from a document of that date from an associated company of the respondent which carried out technical investigations that it had not by then been established that the main ore body could be extracted economically. Nor was there evidence of any subsequent evaluation of the gold reserves of the mine.
Notwithstanding that the definition of "Moneys Hereby Secured" in the guarantee plainly included the additional loan of $2.5m, the respondent indicated by a letter of 8 November 1988 that that loan would not be the subject of the guarantee. The loan was made on 11 November 1988. Later loans were made by the respondent to Provest, none of which are relevant to the question in issue. The respondent relied only on default in payment of instalments of the loan of $5.5m to trigger the action on the guarantee.
The question is whether, by the time the loan of $2.5m was made, the respondent had formed the opinion specified in cl. 31(a). In contending that it had, the appellant relied on concessions in cross-examination by each of two of the respondent's principal officers, Messrs Anderson and Carr, that they were satisfied by that date that the value of the reserves for security purposes was $5.122m, the figure calculated in the above credit application. His Honour nevertheless held that the respondent had not held the relevant opinion. He held this substantially on two bases.
First, his Honour considered that there was no evidence that the respondent thought that the gold reserves of the mine generally were of sufficient value to provide security, alternative to the guarantee, for the original loan; and that the consideration by Messrs Anderson and Carr of the nett value, for security purposes, of surface dumps, tailings, dams and underground pillars was consideration of a quite different question. That question was whether a further advance of $2.5m should be made.
Secondly, his Honour thought that the phrase "in all respects" in cl. 31(a) allowed consideration of the personal character of some of the guarantors; the fact that 21 of them were partners in the accountancy firm of Ernst and Whinney who, as professional and businessmen of experience, were not only likely to honour their guarantee but also to become involved in the business of the mine, thus enhancing its financial prospects. Consequently his Honour thought that the guarantee was an earnest of performance of Provest's obligation and, we assume although his Honour did not expressly say so, there was no evidence that, in that sense, the respondent thought that the gold reserves of the mine were proven to be suitable, in quantity and quality, as security alternative to the guarantee.
The appellant submitted, correctly in our view, that the first limb of cl. 31(a) must be construed in the light of the second limb of that clause and also of cl. 31(b). He then submitted that, construed in that context, the first limb required no more than that the gold reserves be of sufficient quantity and quality to be, in the respondent's opinion, worth $1.55m; and that the concession made by two of the respondent's principal officers referred to above established that.
The respondent on the other hand submitted that the clause required that the gold reserves be sufficient, in the respondent's opinion, to justify the release of the guarantee, and that that included consideration of the personal character of the guarantors.
We think that the correct construction of cl. 31(a) lies between these extreme positions. We agree with the appellant's contention that it was enough for the Creditor to be satisfied that the realisable value of the reserves was sufficient for its security purposes. We think that quantity and quality were relevant only to the value of the reserves for security purposes. And we disagree with his Honour that the phrase "suitable in all respects" allowed consideration of the personal character of the guarantors. That phrase qualified the quantity and quality of the gold reserves. Moreover, even if his Honour's construction were correct, it could not have made the guarantee, which the reserves would replace as security, worth more than $1.5m.
But we also agree with the respondent's contention to the extent that the condition in the first limb of cl. 31(a) required consideration of what was of sufficient value to replace the guarantee. We think that that view is supported by both the textual and factual context. The phrases "for the Creditor's security purposes" in the first limb of cl. 31(a) and "alternative security" in the second are, in the context of the whole of cl. 31, a reference to the purposes already performed by the guarantee and security alternative to the guarantee respectively.
As to factual context, the credit variation, recommended by Mr Anderson and Mr Lummis of the respondent, pursuant to which the loan of $5.5m was made, was necessitated by the respondent's cancellation of an earlier facility of $8m consisting of the above loan and a leasing facility of $2.5m to enable Provest to lease an ore crushing plant. That facility had been cancelled because the reserves of the gold mine had not been proven to a satisfactory standard. The credit variation recommendation included the guarantee in lieu of any proven value of the reserves of the mine. That context suggests that the purpose of cl. 31(a) was to allow discharge of the guarantee when the reserves were proven to be a suitable substitute for the guarantee to secure the loan.
We think that the critical aspect of the construction of the clause, for present purposes, is that it envisaged a consideration of quantity and quality of reserves in the context of an assessment of all security requirements of the respondent in the absence of the guarantee. The question then is whether, when Messrs Anderson and Carr arrived at the view that the value of the reserves for security purposes was $5.122m, they were considering that overall position.
In the document of 24 October 1988 Messrs Anderson and Lummis envisaged that, if the advance of $2.5m were made, the guarantee would remain until the reserves generally had been proven up. That is not surprising given that the document appears to give no consideration to the question whether the surface dumps, tailings, dams and underground pillars, in addition to providing security for the recommended advance of $2.5m, might also provide additional security for the existing loan of $5.5m. The terms upon which the loan of $2.5m was made, contained in a document which is undated but which appears to have been sent by the respondent to Provest on 28 October 1988, included an acknowledgment by the guarantors of the increase in the loan.
Mr Anderson, in his evidence in chief, stated that he then formed the belief that it was important to the respondent for Provest to acquire the ore crushing plant because it was the only practical way for Provest to make the mine economically viable and consequently to generate revenue from the mine necessary to enable it to make the repayments to the respondent on the original loan. He thought that the loan of $2.5m was an advantageous commercial risk for the respondent to take in order to ensure an early income flow. He was conscious that, given the extent to which Provest's assets were already mortgaged to the respondent, it would be unlikely that Provest would be able to raise the funds necessary to acquire the plant from another financier. He recalls, on or about 28 October 1988, discussing these matters with Messrs Lummis and Carr and expressing the view that the guarantee should remain in place. He recalls each of them expressing agreement with his views; in particular that the need for Provest to obtain the additional plant should outweigh the concern they felt about any risk involved. Mr Carr's evidence in chief was to similar effect. He did not consider that the mine had been proven up and he did not form the view that the guarantors were entitled to a discharge.
The concessions made in cross-examination by each of Anderson and Carr that it was his view at that time that the reserves were of a quantity and quality suitable for security purposes to the extent of $5.122m must be seen in the light of the above evidence. Each was looking solely to the question whether those limited reserves consisting of surface dumps, tailings, dams and some underground pillars justified a further advance of $2.5m to enable the necessary purchase of the above plant on the assumption that the guarantee remained to secure the earlier loan. Neither, we think, adverted to the question whether, in addition, the reserves were proven to be of a quantity and quality suitable to secure the $5.5m loan in substitution for the guarantee. They were not considering whether the reserves, together with other security apart from the guarantee, were sufficient security for what was to be a total advance of $8m but only whether the reserves would justify the course necessary to enable Provest to generate income from the mine. Consequently, we do not think that the first condition specified in cl. 31(a) of the deed of guarantee was fulfilled at any material time.
The appeal is therefore dismissed with costs.
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