Scott v Forster Pastoral Co Pty Ltd
[2000] NSWCA 241
•31 August 2000
Reported Decision: (2000) 35 ACSR 294
New South Wales
Court of Appeal
CITATION: Scott v Forster Pastoral Co Pty Ltd & Ors [2000] NSWCA 241 FILE NUMBER(S): CA 41017/99 HEARING DATE(S): 25 August 2000 JUDGMENT DATE:
31 August 2000PARTIES :
Walter Robert Scott - Appellant
Forster Pastoral Co Pty Ltd & Ors - RespondentsJUDGMENT OF: Meagher JA at 1; Giles JA at 2; Foster AJA at 43
LOWER COURT JURISDICTION : District Court LOWER COURT
FILE NUMBER(S) :2/97 (Taree) LOWER COURT
JUDICIAL OFFICER :Delaney DCJ
COUNSEL: T L Thomas - Appellant
G A Rich - RespondentSOLICITORS: Appellant in person (City Agent: Spencer Steer & Associates)
Barraclough Jones & Associates, TareeCATCHWORDS: GUARANTEE - discharge - expressed to be in consideration of creditor voting in favour of resolutions - creditor voted against resolutions - guarantor not obliged to pay - no question of effect on guarantor's interests or of election by guarantor. D CASES CITED: Cooper v Joel (1859) 1 De G F & J 240; 45 ER 350;
Burton v Gray (1873) LR 8 Ch App 932;
Royal Bank of Canada v Salvatori (1928) 3 WWR 501;
Cornell v Bradford (1929) QWN 45;
National Bank of Nigeria Ltd v Awolesi (1964) 1 WLR 1311;
Thew v Clarke & Walker Pty Ltd (1967) 2 NSWR 268;
Clarke & Walker Pty Ltd v Thew (1967) 116 CLR 465;
Molsons Bank v Cranston (1981) 45 DLR 316;
Marston v Charles H Griffith & Co Ltd (1985) 3 NSWLR 294;
James Graham & Co (Timber) Ltd v Southgate-Sands (1986) 1 QB 30;
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549;
Bleyer v Neville Jeffriess Advertising Pty Ltd (CA, 15 December 1987, unreported);
Mostyn v Mostyn (1989) 16 NSWLR 635;
Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689.DECISION: The appeal is upheld, the verdict and judgment for the respondents and the order for costs below is set aside, and in lieu thereof there is a verdict and judgment for the appellant and an order that the respondents pay the costs of the proceedings in the District Court. The respondents to pay the costs of the appeal but have a certificate under the Suitors Fund Act if qualified.
THE SUPREME COURT
CA 41017/99
OF NEW SOUTH WALES
COURT OF APPEAL
DC 2/97 (Taree)
MEAGHER JAGILES JA
FOSTER AJAThursday 31 August 2000
SCOTT v FORSTER PASTORAL CO PTY LTD & ORSJUDGMENT1 MEAGHER JA: I agree with Giles JA.
2 GILES JA: The appellant was a director of Shelldale Corporation Pty Ltd (“Shelldale”). Shelldale agreed to purchase from the respondents their shares in Golden Ponds Corporation Pty Ltd (“Golden Ponds”). Following default by Shelldale in payment for the shares, the provisions as to payment in the written agreement were varied on two occasions. In conjunction with the second variation the appellant and his co-director guaranteed to the respondents Shelldale’s payment for the shares. In proceedings in the District Court the appellant was held liable to pay $424,847.26 to the respondents under the guarantee.
3 The guarantee was given in consideration of Mr Ronald Aiken, one of the respondents and proxy for the other respondents, voting in favour of what was described in part as a restructure of Golden Ponds. The issue on appeal was whether the appellant had been discharged (in the sense later explained) from his obligations as guarantor because Mr Aiken had voted against a particular resolution of the shareholders of Golden Ponds.
4 This had not been expressly pleaded in the appellant’s defence filed in the District Court, which had simply denied the allegation that the appellant had guaranteed Shelldale’s payment for the shares. The appellant’s cross-examination of Mr Aiken, who was called as a witness in the respondents’ case, clearly enough flagged the issue, and we were informed that it was the subject of full submissions to the trial judge. The reasons of the trial judge did not deal with it. The respondents accepted that the issue could be raised on appeal.
5 In the manner the appeal was argued, the questions were -
(a) whether Mr Aiken had voted against the resolution; if yes
The guarantee
(b) whether the resolution was a resolution for the restructure of Golden Ponds within the meaning of the guarantee; and if yes
(c) whether the consequence was that the appellant was discharged from his obligations as guarantor.
6 The guarantee was expressed to be a deed made between the respondents (referred to as the vendors), Shelldale (referred to as the purchaser), and the appellant and his co-director (referred to as the guarantors). It was prepared by the respondents’ solicitor, and was taken by Mr Aiken to a meeting with the appellant and his co-director on 6 May 1991. It was there signed by the appellant and his co-director, and was taken away for execution under the seal of Shelldale. On 10 May 1991 a copy as signed by the appellant and his co-director was faxed to the respondents’ solicitor. On 14 May 1991 a copy bearing the execution of Shelldale as well as the signatures of the appellant and his co-director was faxed to the respondents’ solicitor. The solicitor dated it 6 May 1991.
7 Mr Aiken placed his signature at the foot of each page of the guarantee, as did the appellant, but did not execute it as a party. Nor did the other respondents execute it as parties.
8 The guarantee recited the agreement of 31 August 1989 for sale of shares in Golden Ponds, that Mr Aiken had not acted as a director of Golden Ponds since the date of that agreement “and has no knowledge of any contracts, agreements or other transactions entered into by the company since that date”, and that Mr Aiken had resigned as a director on 26 April 1991 although his resignation had not been recorded with “the Securities Commission of Australia”. The recitals continued -
“(g) Between the date of the Agreement for sale of Shares and the present date the company has entered into a number of contracts, agreements and transactions in the course of its business included amongst which are transactions with Beneficial Finance Corporation Limited.
(h) The purchaser and the company have entered into negotiations with Beneficial Finance Corporation Limited to refinance the commitments of both companies.
(i) Beneficial Finance Corporation Limited have requested that steps be taken to restructure the company and to amend the company’s Memorandum and Articles of Association.
(j) The proposed restructure of the company and the proposed amendments to the Memorandum and Articles of Association have the potential to reduce the value of the vendors’ shareholding in the company should the Agreement for Sale of Shares not be completed.
(k) Ronald Phillip Aiken because of his leave of absence is unable to identify what effect, if any, his vote to restructure the company and to amend the Memorandum and Articles of Association of the company may have in relation to his rights as a director, the value of the vendors’ shares in the company and his obligations under the Companies (NSW) Code or Corporations (NSW) Act.
(l) Ronald Phillip Aiken is aware of the requirement to restructure the company and has agreed to vote in favour of the restructure of the company and the amendments to the Memorandum and Articles of Association of the Company on the basis of representations made to him by the purchaser and the guarantors to the effect that the proposed restructure and amendments are necessary for the ongoing better management of the company.”9 In the operative clauses, the guarantee first made provision for Mr Aiken to obtain advice in relation to voting “in his own right and as proxy for the vendors in favour of the restructure of the company and amendment of the Memorandum and Articles of Association of the company”.
10 The guarantee then provided in cll 2 and 4 -
“2. In consideration of Ronald Phillip Aiken in his capacity as shareholder in the company and as proxy for the vendors agreeing to record his vote in favour of the restructure of the company and the amendments to the Memorandum and Articles of Association of the company the purchaser and guarantors jointly, severally and irrevocably:
(a) Indemnify Ronald Phillip Aiken against all actions, suits, claims or penalties whatsoever which may be initiated or imposed against Ronald Phillip Aiken by the Securities Commission of Australia or any other duly constituted body or authority in respect of any breach of duty by Ronald Phillip Aiken in his capacity as a director of the company or breach of fiduciary duty to the company arising from all agreements, contracts, mortgages, liens, charges or other transactions entered into by the company from the date of the Agreement for Sale of Shares to the date of completion of the Agreement for Sale of Shares.
(b) Indemnify Ronald Phillip Aiken and the vendors in respect to all mortgages, charges, guarantees, agreements, deeds and transactions which the guarantors and or the purchaser may have procured from the company securing the obligations and financial indebtedness whether contingent or otherwise of the purchaser to Beneficial Finance Corporation Pty Ltd.
…
4. In further consideration of Ronald Phillip Aiken agreeing to vote in favour of the restructure of the company and the proposed amendments to the Memorandum and Articles of Association of the company the guarantors agreed as follows:
(a) the Guarantors guarantee to the vendors that they will be with the purchaser jointly and severally liable to the vendors for the due payment of all moneys to be paid by the purchaser under the Agreement for Sale of Shares and the due performance and observance by the purchaser of all the covenants terms and conditions of the Agreement for Sale of Shares on the part of the purchaser to be performed and observed.
… ”
11 There followed provisions expressing the guarantors’ obligations as an indemnity and as a primary debtor, and provisions protective of the guarantee notwithstanding granting of time etcetera of a kind often found in guarantees. It is unnecessary to go into these provisions, since the respondents did not rely on them in the appeal.
12 Although the guarantee was expressed to be a deed, with the appellant and his co-director signing against attestation clauses appropriate to a deed, it was common ground that it was not a deed as regards the appellant and his co-director because their signatures were not witnessed (Mostyn v Mostyn (1989) 16 NSWLR 635). The guarantee relevantly operated as a guarantee given for the consideration expressed at the commencement of cl 4. In the light of the provision as to advice and the commencement of cl 2, the consideration was probably to be read as extending to voting as proxy for the other respondents as well as voting in the exercise of Mr Aiken’s own vote.
13 There were no submissions on whether the consideration for the guarantee should be regarded as moving from all the respondents or from Mr Aiken alone, or the significance (if any) of this to the position of the respondents other than Mr Aiken when they sued to enforce the guarantee. One of the submissions on appeal was that the failure of the respondents other than Mr Aiken to sign the guarantee, it seems treating Mr Aiken’s signature at the foot of each page as sufficient to bind him, meant that “the contract simply did not come into existence”. In what follows I will assume a contract of guarantee which, subject to discharge, the respondents could enforce.14 On 10 May 1991 the solicitors for Beneficial Finance Corporation Ltd (“Beneficial”) faxed to Shelldale draft minutes of a meeting of the shareholders of Golden Ponds providing for three special resolutions. By the first two resolutions article 81 would be deleted from the articles of association of Golden Ponds and a new article 81 would be inserted, to the effect that Golden Ponds could contract with its directors. The third resolution was -
Did Mr Aiken vote against the resolution?
“3. That the Company ratifies and confirms that the directors of the Company were at any time prior to the date of this meeting authorised to enter into and execute all mortgages, charges, guarantees agreements and deeds whatsoever that have been entered into securing the obligations and financial indebtedness whether contingent or otherwise of THE SHELLDALE CORPORATION PTY LTD to BENEFICIAL FINANCE CORPORATION LIMITED .”
15 A meeting of the shareholders of Golden Ponds was held on 13 May 1991, as regards the respondents attended by Mr Aiken in his own right and as proxy for the other respondents. According to the minutes of the meeting, the first two resolutions were passed unanimously as special resolutions, but the third resolution was passed as an ordinary resolution on the vote of Shelldale “representing 74%” with “The Aiken Family Holdings representing 26%” voting against. It was accepted in the appeal that the votes against were those of Mr Aiken in his own right and as proxy for the other respondents.
16 A further meeting of the shareholders of Golden Ponds was held on 18 May 1991. As regards the respondents, again Mr Aiken was present in his own right and as proxy for the other respondents. It seems that the meeting was held because the solicitors for Beneficial considered that the meeting of 13 May 1991 had been “invalidly constituted”, but for reasons which did not appear the only substantive resolution at the meeting was in the terms of the third resolution passed on 13 May 1991. The resolution was passed on the vote of Shelldale “532,000 shares - 73.08%” with “other shareholders: 196,000 shares - 26.9%” voting against.
17 The minutes of both meetings were signed by the appellant, his co-director, and Mr Aiken. The evidence included a statutory declaration by the appellant and his co-director, annexing a copy of the minutes of the meeting of 18 May 1991 and declaring that they were a true record of the proceedings and a true copy of the minutes of the proceedings. In his oral evidence Mr Aiken at first said that he thought that he had voted in favour of the third resolution. He recanted as to the meeting of 13 May 1991 when faced with the signed minutes of the meeting, but at that point in his evidence maintained that he had voted in favour of the resolution at the meeting of 18 May 1991. When provided with the minutes of the latter meeting he agreed that they showed to the contrary, although he was not specifically taxed with his signature of the minutes of the latter meeting; nor was the statutory declaration put to him. The trial judge said that he generally accepted the evidence of Mr Aiken, while commenting that the passage of time had led to difficulty in recollection. He made no finding as to the voting in relation to the third resolution.
18 The respondents submitted that it followed from the trial judge’s general acceptance of the evidence of Mr Aiken that it should be found that he voted in favour of the third resolution. I do not think that can be accepted. It is plain that Mr Aiken’s recollection on this matter was not reliable. Although he did not in terms acknowledge that it was faulty in relation to the meeting of 18 May 1991 as well as the meeting of 13 May 1991, I doubt that, in the end, Mr Aiken was really saying that he voted in favour of the third resolution at the meeting of 18 May 1991. The evidence to the contrary, the minutes signed by Mr Aiken and others and the statutory declaration made by Mr Aiken and his co-director, so clearly demonstrate that Mr Aiken voted against the third resolution that I consider that, in the absence of a finding by the trial judge, it can and should be found on appeal that he did vote against the resolution.
Was the resolution a resolution for the restructure of Golden Ponds within the meaning of the guarantee?
19 By cl 4 of the guarantee Mr Aiken was to vote “in favour of the restructure of the company and the proposed amendments to the Memorandum and Articles of Association of the company”. The first two resolutions were for amendment to the articles of association of Golden Ponds, but the third resolution was not a resolution of that kind: the appellant so acknowledged. The respondents submitted that the third resolution was not a resolution for the restructure of Golden Ponds, and the appellant agreed that the subject matter of the resolution would not fall within the normal notion of restructure of a company. But the appellant submitted that in the particular circumstances it fell within the meaning of the phrase as used in cl 4.
20 According to Mr Aiken he went to the meeting on 6 May 1991 because Beneficial wanted some documents signed, and he said at the meeting that he would not sign them unless the appellant and his co-director signed the guarantee. Mr Aiken’s description of what Beneficial wanted signed varied: sometimes he referred to alterations to the memorandum and articles of association of Golden Ponds, but he also referred to “other material required by Beneficial Finance”, being “some documents required by their finances”.
21 The respondents’ solicitor gave evidence in which he said that he received from the solicitors for Beneficial a document called “an acknowledgment undertaking and authority, I think” and a guarantee for Mr Aiken to sign “in his capacity as a director for the new finance facility that Shelldale had applied for from Beneficial”. The solicitor also gave evidence that he understood from the solicitors for Beneficial that in order for the re-financing to proceed amendments to the memorandum and articles of association of Golden Ponds would be required, but he described the amendments as amendments “which, retrospectively, approved some of the actions taken by Messrs Burke [the appellant’s co-director] and Scott”. He also described the documents received from the solicitors for Beneficial as including “minutes of the resolutions that [the solicitors] obviously considered were required to make the necessary amendments to memorandum and articles, and to give some ratification to earlier transactions”.
22 The solicitor said that he received instructions that Mr Aiken would not “vote in favour of the alterations” unless he received a personal guarantee from the appellant and his co-director. Still according to the solicitor, together with the guarantee he provided to Mr Aiken to take to the meeting other documents which he described as “an undertaking, an authority, relating to some security documents and a deed of guarantee”, the lastmentioned document being “a guarantee that Beneficial wanted from the directors of Golden Ponds”.
23 The evidence was rather confused, but in my view it is clear enough that the words “the restructure of the company” in the guarantee were used not in their normal sense, but to encompass all Beneficial’s requirements to be satisfied by resolutions of the shareholders of Golden Ponds. None of the three resolutions was really for the restructure of Golden Ponds. The first two resolutions were for amendment to its articles of association, only the third resolution could give content to the remainder of the relevant phrase as used in the guarantee, and ratification of past acts of Golden Ponds securing to Beneficial the obligations and indebtedness of Shelldale was undoubtedly one of Beneficial’s requirements. This was part of what Mr Aiken was agreeable to do in return for the guarantee.
24 The wording of the guarantee read as a whole leads to this conclusion. The references to restructure of Golden Ponds and amending its memorandum and articles of association are in the context of requirements of Beneficial, being requirements in connection with the re-financing. As the draft minutes show, those requirements included ratification of past acts of Golden Ponds securing to Beneficial the obligations and indebtedness of Shelldale, and Mr Aiken’s vote was required in order to ensure the ratification: hence the recital in the guarantee of his departure from Golden Ponds and its entry into transactions with Beneficial, and of the advice he was to obtain, and the provision for indemnity against adverse consequences to Mr Aiken and the other respondents of the transactions subject to ratification. The language was inappropriate, but reading the guarantee as a whole and in the light of the surrounding circumstances the parties included in what was meant by restructure of Golden Ponds the passing of the third resolution.
Was the consequence that the appellant was discharged from his obligations as guarantor?
25 In a number of cases there has been discharge of the obligations of a guarantor when the guarantee was given for a consideration which the creditor then failed to provide.
26 In Cooper v Joel (1859) 1 De G F & J 240; 45 ER 350 a guarantee of a judgment debt was given in consideration of the creditor agreeing to postpone a sale under execution. The sale went ahead, and it was held that the guarantee would not have been given unless it had been thought the sale would be stopped and that it was “contrary to equity and good conscience to put the guarantee in force” (at 245; 352). In Cornell v Bradford (1929) QWN 45 a guarantee was given in consideration of a sum of money stated to be then paid to the guarantor. The money was not paid, and it was held (with reference to Cooper v Joel) that the consideration had wholly failed and the guarantor was discharged from the contract of guarantee.
27 In Burton v Gray (1873) LR 8 Ch App 932 the third party deposited title deeds with the creditor as security for a loan to the debtor, under a memorandum stating that he did so in consideration of the creditor lending the money to the debtor. The money was not lent as agreed, although the debtor was allowed to overdraw his account with the creditor. It was held that, on the construction of the memorandum, unless the money was lent as agreed “the mortgage never came into operation”; it was said that the creditor must have known that if the money was not lent “the ground for the Plaintiff becoming security never existed, and that therefore he was not bound”, and that “the consideration which was the condition precedent to the mortgage and the guarantee attaching never was complied with” (at 937).
28 In Royal Bank of Canada v Salvatori (1928) 3 WWR 501, a decision of the Privy Council, a guarantee was given in consideration of the creditor continuing to deal with the debtor “in the way of its business as a bank”. The creditor kept the debtor’s bank account open and received payments, but it was held that it otherwise did not deal with the debtor as it had promised. In delivering the advice of the Privy Council Lord Atkinson said (at 508) -
“The deed really contains two covenants or contracts, one being the consideration for the other, the first covenant being that if the Bank continue to deal with the firm as their customer in the way of its business as a bank, the guarantor will pay to the bank the $40,000 at the times and in the manner specified and do the other things he has undertaken to do. The bank have failed to perform this covenant, they have not continued to deal with the firm as their customer in the way of their business as a bank. The guarantor has not received the consideration, i.e., the whole of the consideration upon which his covenant was based. He is therefore not bound to perform that covenant by reason of this failure.”
29 In Thew v Clarke & Walker Pty Ltd (1967) 2 NSWR 268 a guarantee was given in consideration of the creditor undertaking not to sue or take any proceedings against the debtor. The creditor served on the debtor a statutory demand under the then companies legislation. The only question was whether this was taking proceedings against the debtor, and when holding that it was Holmes JA, with whom Jacobs JA agreed, said that the concession that if there was a breach of the guarantee by the creditor then the guarantor was not liable was “obviously right” (at 272). On appeal Clarke & Walker Pty Ltd v Thew (1967) 116 CLR 465 the question was the same, although it was held by majority that service of the demand was not taking proceedings against the debtor.
30 In National Bank of Nigeria Ltd v Awolesi (1964) 1 WLR 1311, again a decision of the Privy Council, a guarantee was given in consideration of the creditor continuing the debtor’s existing bank account. It did not do so, but permitted the debtor to open and operate on a new account. It was held that this was a departure from the terms of the contract of guarantee, to the detriment of the guarantor, and that the guarantor was thereby discharged. Although there was reference to cases concerning discharge upon variation of the contract between the creditor and the debtor whereby the guarantor’s obligations were materially altered, that appears to have been to indicate the favourable approach to guarantors generally taken.
31 The reasoning in these cases is not uniformly stated, but its essence is that the guarantor is relieved from his obligations when the creditor does not do that in return for which the guarantee was given. In this respect the cases are analogous to cases in which a guarantee given on condition that the creditor obtains other guarantees or particular security does not bind the guarantor if the other guarantees or security are not obtained (for example, Molsons Bank v Cranston (1981) 45 DLR 316; James Graham & Co (Timber) Ltd v Southgate-Sands (1986) 1 QB 30; Marston v Charles H Griffith & Co Ltd (1985) 3 NSWLR 294; Bleyer v Neville Jeffriess Advertising Pty Ltd (CA, 15 December 1987, unreported)). In the latter cases it is said that a condition of the operation of the guarantee or of the performance of the guarantor’s obligations is not fulfilled, and where in the former cases the guarantor has not received “the whole of the consideration upon which his covenant was based” (Royal Bank of Canada v Salvatori at 509) he also can not be required to perform his obligations as guarantor.
32 In Ankar Pty Ltd v National Westminister Finance (Australia) Ltd (1987) 162 CLR 549 the creditor agreed to give notice of particular events to the guarantor, although it was not a case of a guarantee expressed to be given for that consideration. The creditor failed to give the notice, and it was held that the guarantor was discharged from liability. There was some divergence in reasoning between the joint judgment of Mason ACJ and Wilson, Brennan and Dawson JJ and the separate judgment of Deane J, although all members of the court took account of the special character of a suretyship contract.
33 The joint judgment recognised that performance by the creditor of a contractual promise may be a condition precedent to the liability of the surety under a contract of suretyship which otherwise involves no more than a guarantee of payment of the debt owing to the creditor (at 555-6). Their Honours thought that in such circumstances the creditor’s promise would necessarily be an essential term of the contract, so that the guarantor could also treat the contract of guarantee as discharged for breach of a condition (ibid). While noting (at 556) that there was a natural tendency to refer to the creditor’s promise as a condition precedent rather than a condition, because many guarantees contain no promises on the part of the creditor except so far as the recital of the consideration may refer to such a promise, they decided the case as a case of breach of a promissory condition, regarding the failure to give notice as breach of conditions which, at the guarantor’s option, discharged it from performance of its obligations. But their Honours again used language of condition precedent when they said (at 561) that the justification for the discharge of a surety for breach of a promissory term in the suretyship contract -
“ … must be that the creditor has failed to comply with a provision that, as a matter of interpretation, requires strict performance as a condition precedent to the surety’s obligation or at least requires substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred.”
34 Deane J considered that the creditor’s failure to perform the terms of the contract with a surety discharged the surety because the failure “would otherwise result in a situation where the surety was held liable in circumstances other than those in which he had agreed to be bound” (at 569; see also at 570). Breach of an essential term was unnecessary. His Honour said (at 570) that the promissory obligations of a creditor sometimes described a condition precedent of the surety’s liability should preferably be spoken of as part of the general circumstances in which the surety has agreed to become liable for the default of the debtor.
35 A guarantor may be discharged from his obligations as guarantor because a condition precedent to the operation of the guarantee or to the performance of his obligations is not fulfilled. The language of discharge may not be appropriate in this context, but is conventional. A guarantor may also be discharged from his obligations as guarantor for breach by the creditor of a promissory obligation under the guarantee if the obligation is classified as a condition, or perhaps as an innominate term (Ankar Pty Ltd v National Westminister Finance (Australia) Ltd at 561-2), rather than as a warranty sounding only in damages.
36 Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689, in which there was failure to fulfil an express precondition to making demand on the guarantor, is a clear instance of discharge on the former basis. As it demonstrates, there is no question whether there is substantial fulfilment of the condition precedent or whether the failure in fulfilment materially affected the guarantor’s interests. Where the discharge is for breach by the creditor of a promissory obligation, however, the nature of the obligation or the effect of its breach will arise for consideration, and it may also be that the discharge is not automatic but at the election of the guarantor (see Ankar Pty Ltd v National Westminister Finance (Australia) Ltd per Mason ACJ and Wilson, Brennan and Dawson JJ at 555-6, 561, 562; cf Deane J at 570).
37 Where in this analysis does a guarantee given in return for a specific consideration, which the creditor then failed to provide, fall? The cases earlier considered do not treat the promised consideration simply as a promissory obligation of the creditor. Perhaps influenced by the special character of a suretyship contract, just as an ambiguous contractual provision should be construed in favour of the guarantor (Ankar Pty Ltd v National Westminister Finance (Australia) Ltd at 561) so also provision of the specific consideration is treated as a condition of the operation of the guarantee or of the performance of the guarantor’s obligations. If the creditor does not provide the specific consideration in return for which the guarantee was given, the guarantor is not obliged to pay under the guarantee. There is no question of the effect on the guarantor’s interests or of election by the guarantor.
38 In my opinion the promise to vote in cl 4 of the guarantee was specific consideration of this kind. Although the consideration was expressed as an agreement to vote in favour of the restructure of Golden Ponds and the proposed amendments to its memorandum and articles of association, what Shelldale wanted, and what the appellant and his co-director wanted in return for their guarantee, was the exercise of the respondents’ voting power to fulfill the requirements of Beneficial. The appellant and his co-director did not give their guarantee in return for the promise, but in return for performance of the promise, and an action for damages in the event that Mr Aiken did not vote as agreed would have been of little comfort to them. In my view it is clear enough that the appellant would not have entered into the contract of guarantee if he had not been assured that there would be the exercise of voting power, and it does not matter that, as it happened, the third resolution was passed as an ordinary resolution despite the votes against it.
39 The respondents submitted that it was necessary for the appellant to elect to be discharged from his obligations under the guarantee, and that he had not done so but rather had affirmed his obligations by replying to a demand made upon him, “I do not deny my liability to your client”. However, it follows from what I have said that an election to be discharged was not necessary; equally, therefore, there could not be an election to affirm.
40 The respondents then submitted that the appellant was estopped from relying on the failure to vote in favour of the third resolution. They said that the appellant did not complain about the failure to vote in favour of the resolution at the time, and had not treated himself as discharged from his obligations but rather had affirmed them as described above, and that he had retained through Shelldale the benefit of the shares.
41 Estoppel was not pleaded in the District Court, and a reading of the transcript does not indicate that it was flagged as an issue in the course of the evidence in the same manner as discharge of the appellant’s obligations under the guarantee had been flagged. However, I do not think this matters. Perhaps because it was not a live issue, there was no evidence that the respondents, or Mr Aiken for himself or on their behalves, acted to their or his detriment as a result of the appellant’s failure to complain or treat himself as discharged. The respondents continued with the transaction notwithstanding their default. So did the appellant, but that did not preclude him from contending when sued that the respondents’ default had worked a discharge. There are no grounds for an estoppel operating against the appellant.
42 It is unsatisfactory to dispose of the appeal without the benefit of the trial judge’s findings or reasons on the material issue. However, in the particular circumstances I consider that the appeal can and should be determined. The appeal should be upheld, the verdict and judgment for the respondents and the order for costs below should be set aside, and in lieu thereof there should be a verdict and judgment for the appellant and an order that the respondents pay the costs of the proceedings in the District Court. The respondents should pay the costs of the appeal, but have a certificate under the Suitors Fund Act if qualified.
43 FOSTER AJA: I agree with Giles JA.___________
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