Snashall v Mumme - [1999] WASC 148

JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
IN CHAMBERS

CITATION: SNASHALL & ANOR -v- MUMME & ORS [1999] WASC 148

CORAM: MASTER SANDERSON

HEARD: 27 JULY & 20 AUGUST 1999

DELIVERED : 27 AUGUST 1999

FILE NO/S: CIV 1551 of 1998

BETWEEN: LESLIE BRIAN SNASHALL
ROBIN ANNE SNASHALL
Plaintiffs
AND
CHRISTOPHER JOHN MUMME
First Defendant
LAURENCE EUGENE WINTON
Second Defendant
GREGORY JAMES KENNEDY
Third Defendant
PHILLIP GRAEME SHARP
Fourth Defendant

Catchwords:

Summary judgment by defendant - Whether document constitutes guarantee - Whether guarantee discharged - Turns on its own facts

Legislation:

Supreme Court Rules, O 16

Result:

Application dismissed

Representation:

Counsel:

Plaintiffs:     Mr P E Harris
First Defendant             :     Ms C M F Crabb
Second Defendant         :     No appearance
Third Defendant           :     Mr D L Jones
Fourth Defendant          :     No appearance

Solicitors:

Plaintiffs:     Wojtowicz Kelly
First Defendant             :     Freehill Hollingdale & Page
Second Defendant         :     No appearance
Third Defendant           :     Joanne Matich & Associates
Fourth Defendant          :     No appearance

Case(s) referred to in judgment(s):

Ankar Pty Ltd v National Westminster Finance (Aust) Limited (1987) 162 CLR 549
Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337
Egbert v National Crown Bank [1918] AC 903
Kenny v Sholl (1905) 7 WALR 197

Case(s) also cited:

A A Davison Pty Ltd v Seabrook (1931) 37 Argus LR 156
Amalgamated Investment & Property Co (In Liq) v Texas Commerce International Bank Ltd [1982] QB 84
Commonwealth v Verwayen (1990) 170 CLR 394
Cordinup Resorts Pty Ltd v Terana Holdings Pty Ltd, unreported; FCt SCt of WA; Library No 970739; 23 December 1997
Fancourt v Mercantile Credit Ltd (1983) 44 ALR 1
Hospital Contribution Fund of Australia v Hunt (1982-1983) 44 ALR 365
JGL Investments v Maracorp Financial Services [1991] 2 VR 168
McGellin v Mount King Mining NL (1998) 144 FLR 288
Theseus Exploration NL v Foyster (1972) 126 CLR 507
Walton Stores (Interstate) Ltd v Maher (1988) 164 CLR 387
Williams v Frayne (1937) 58 CLR 710

MASTER SANDERSON: This is the third defendant's application for summary judgment. It is brought under O 16 and it is brought out of time. Leave to bring the application is required under O 16 r 1(1). The application for the extension of time and the application for summary judgment were heard together. It is convenient if I outline the third defendant's case on the summary judgment application before dealing with the application for an extension of time. The action as against the second and fourth defendants has been discontinued.
In the plaintiffs' substituted statement of claim which was filed 30 March 1999, Gregory James Kennedy is described as the second defendant. Originally and in other documents he is described as the third defendant and this is how I will refer to him in this judgment. The first defendant is said by the statement of claim to be a finance broker. The third defendant is identified as a director of Torbay Holdings Pty Ltd ("Torbay") and the holder of an interest in a company described as Greenwood Equity Pty Ltd ("Greenwood Equity"). It is pleaded that in 1991 the plaintiffs advanced the sum of $80,000 to Torbay. This is described in the statement of claim as "the Torbay Loan". It is alleged that in May 1992 the plaintiffs held discussions with the first defendants in relation to a proposed loan to Greenwood Equity. Without going into the details of that loan, it is alleged that as part of the transaction the Torbay Loan would be repaid. Funds would then be lent to Greenwood Equity and certain security would be provided for that loan. The obligations of Greenwood Equity, so it is pleaded, were to be guaranteed by the third defendant, among others. It is also specifically pleaded, that documentation would be prepared to give effect to the agreement reached in these discussions (see par 6.6).
It is then pleaded that the loan was made to Greenwood Equity but that not all of the anticipated documentation was completed. This is dealt with in par 12.3 and par 12.4 of the substituted statement of claim. Insofar as the guarantee to be given by the third defendant is concerned, par 12.4 is relevant. It is in the following terms:
"12.4the obligations of Greenwood Equity under the loan were not formally guaranteed by either Tiffany Heights Pty Ltd, Phillip Graeme Sharp or Gregory James Kennedy [the third defendant]."
The wording of this paragraph is curious. It is not entirely clear what is meant by the phrase "were not formally guaranteed". There was either a guarantee or there was not. If what the draftsman of the pleading meant to say is that there was no written guarantee but that the guarantee was oral, then so much should have been pleaded. After all, oral guarantees are not generally enforceable unless there is something more, such as part performance. In other words, it would have been necessary to plead material facts which would allow the oral guarantee to be enforced. On the other hand, if the guarantee is in writing, then normal pleading practice would be to identify the written document thereby effectively including the document in the pleading. It might properly be said, then, that par 12.4 is embarrassing. It is, however, difficult to resist the impression that the draftsman has conceded by the terms of the pleading that no guarantee in fact exists. The fact that no guarantee exists is a material fact in the cause of action against the first defendant.
The rest of the pleading down to par 20 is not presently of concern. It details the claim against the first defendant. It is par 20 and subsequently that takes up the claim against the third defendant. Paragraph 20 reads as follows:
"20.Further or in the alternative, by a written agreement dated 27 May 1992 made between the First Defendant on behalf of the Plaintiffs as lender, Greenwood Equity as borrower and the Second [third] Defendant as guarantor it was agreed that the Plaintiffs would loan the sum of $150,000 to Greenwood Equity at the rate of interest of 15% ‑ 25% per annum and that the Second [third] Defendant would guarantee the repayment of the sum of $150,000 and all interest accrued thereon ('the Agreement')."
Thus it is pleaded, as against the third defendant, that there is in fact in existence a written guarantee. This plea on my reading of the statement of claim, is inconsistent with the plea to be found in par 12.4 of the substituted statement of claim. But it is to be noted that it is a plea made in the alternative. A separate set of facts is set up; that is to say it is pleaded as a material fact in par 20 that there was a written guarantee even if it is not so pleaded in par 12.4 - which would allow the otherwise inconsistent plea to stand: see Kenny v Sholl (1905) 7 WALR 197 per Burnside J at 203.
As reference is made in par 20 to "the Agreement" (and I will adopt the plaintiffs' terminology), the document is deemed to be incorporated in the pleading. It is the third defendant's case that this document cannot, under any circumstances, amount to a guarantee. That is the first basis upon which the third defendant says he is entitled to judgment against the plaintiff. The Agreement itself is on the letterhead of WA Finance Centre which, it is pleaded, was the business name under which the first defendant traded (see Annexure "A" to affidavit of Joanne Matich sworn 20 April 1999). Because of the importance of the Agreement I will quote it in full:
"Greenwood Equity Pty Ltd
Unit 1
17 Prindiville Drive
WANGARA    WA    6065
Dear Sirs
We are pleased to advise that funding for the acquisition of the Railway Tavern, Southern Cross, has been approved on the following terms:
Borrower          Greenwood Equity Pty Ltd
Guarantors        Tiffany Heights Pty Ltd
  Tompkins Park Holdings Pty Ltd
  Phillip Graeme Sharp
  Gregory James Kennedy
Security            Unit 1, 6-0 Ryelane Road, Maddington
  Unit 1, 10A Ryelane Road, Maddington
  15 Floating Gold Time Units
  5 Floating Silver Time Units
  Roebourne Town Lot 30 C/T Vol 1437
  Fol 701
Amount            $150,000 - followed by principal reductions
  of $40,000 after 12 months, then $30,000 at
  the expiration of two years.
Rate                  The initial interest rate will be 15-25%
  p.a. fixed for a period of 1 year. The rate
  will be reviewed annually. Monthly
  instalments to be paid by Bank Authority.
General Comments
An absolute caveat will be lodged against the two security properties owned by Mr P G Sharp in lieu of registering respective mortgages.
The costs due and payable to W A Finance Centre total $3,000 which encompasses the lender's establishment fee, our professional costs and valuation. The borrowing parties are responsible for the solicitor's costs.
If you wish to proceed with this proposal please acknowledge where indicated below.
Yours faithfully
C J Mumme
C J MUMME
Director"
There then appears at the foot of the page space for five separate parties to sign the Agreement. One of these parties is the third defendant and he did in fact sign the document. It would appear that it was then returned to WA Finance Centre. Eventually, it made its way into the hands of the plaintiffs.
It is clear from the terms of the Agreement how it was to fit into the whole money lending scheme. On the plaintiffs' pleaded case they had discussions with the first defendant and reached agreement concerning a loan to Greenwood Equity. Having secured the plaintiffs' agreement, the first defendant under cover of his trading name wrote to Greenwood Equity setting out the terms and conditions of a loan to be made. The terms and conditions reflected the discussions he had had with the plaintiffs. If Greenwood Equity and the guarantors were interested in proceeding with the finance on the terms proposed, then they were to sign the letter and return a copy to the first defendant. The letter, by its terms, makes it plain that it was intended, if the Agreement was to proceed, that security documentation including guarantees would be prepared and in due course the documentation would be signed. The second defendant signed the letter, along with four other parties, signifying their intention to proceed with the deal on the terms specified. Can it now be said that this document constitutes a guarantee?
To create a contract of guarantee mutual assent of the parties is required. In Phillips and O'Donovan: The Modern Contract of Guarantee, 2nd ed, at 35, the learned authors put the position as follows:
"No special words are necessary to create a contract of guarantee. The relation of suretyship will arise from the agreement of the parties if they manifest their intention clearly. As we have seen, most contracts of guarantee are concluded by means of offer and acceptance between the creditor and the guarantor, and the principal debtor may be a party to this agreement. Whatever the genesis of the guarantee, the parties must concur in the subject of the contract. While general contractual principles require the parties to the guarantee to be ad idem as to the terms of their agreement, they do not usually protect a party against a unilateral mistake, a secret reservation or an erroneous construction of the contract."
Although a guarantee has about it certain particular requirements (for instance that the agreement be in writing) it does have many of the characteristics of any other contract. For instance, there must be an offer by one party which is accepted by the other, the intention of both being to create legal relations. Once the agreement is reduced to writing, then it is the intention which emerges as a matter of construction from the written instrument which is determinative of the rights and interests of the parties. But in any question which involves the interpretation of an instrument it is open to the parties to lead evidence. The approach to interpretation to documents was considered by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337. Mason J put the position as follows (at 352):
"The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning. Generally speaking facts existing when the contract was made will not be receivable as part of the surrounding circumstances as an aid to construction, unless they were known to both parties, although, as we have seen, if the facts are notorious knowledge of them will be presumed."
It is clear from the terms of the Agreement and the way in which it came to be signed by the third defendant that it is open to doubt whether it constitutes a guarantee. But the point is at least arguable. It may be that the evidence of surrounding circumstances will be necessary before a decision can be made one way or the other. That is a matter which should be dealt with at trial. In my view, it would be inappropriate to grant summary judgment.
The second plank of the third defendant's argument is to the effect that if the Agreement was a guarantee, then the guarantor is discharged because there has been a variation of the surety's obligations. In particular, not all of the mortgage security anticipated was obtained by the plaintiff. In these circumstances, the third defendant says that he is discharged from any obligations which he may have undertaken in the Agreement.
This submission relies on what was said by the High Court in Ankar Pty Ltd v National Westminster Finance (Aust) Limited (1987) 162 CLR 549 (at 559):
"According to the English cases, the principle applies so as to discharge the surety when conduct on the part of the creditor has the effect of altering the surety's rights, unless the alteration is unsubstantial and not prejudicial to the surety. The rule does not permit the courts to inquire into the effect of the alteration. The consequence is that, to hold the surety to its bargain, the creditor must show that the nature of the alteration can be beneficial to the surety only or that by its nature it cannot in any circumstances increase the surety's risk."
With respect, it seems to me that the submissions of the third defendant proceed on an erroneous basis. They assume that there has been a variation of the Agreement between the plaintiff and Greenwood Equity to the effect that not all the anticipated security was provided. There is no evidence of any such Agreement. It may be the case that not all security has been provided, but that may amount to a breach by Greenwood Equity of its agreement with the plaintiffs. It may be a breach capable of remedy. But in any event, it is open to question whether there is a legally binding agreement between Greenwood Equity and the plaintiffs, the consequence of which is that not all the anticipated security would be provided. In these circumstances it is open to doubt whether or not a guarantee is discharged: see Egbert v National Crown Bank [1918] AC 903.
In all the circumstances, I am satisfied that the application for summary judgment cannot succeed. Although I am satisfied leave ought be given to bring the application, the application itself ought be dismissed. Costs of the application will be costs in the cause.