Taylor Square TT Pty Ltd v Kinselas Pty Ltd

[2024] NSWSC 799

Supreme Court

New South Wales

Medium Neutral Citation:

Taylor Square TT Pty Ltd v Kinselas Pty Ltd [2024] NSWSC 799

Hearing dates:

18 June 2024

Date of orders:

28 June 2024

Decision date:

28 June 2024

Jurisdiction:

Equity - Expedition List

Before:

Rees J

Decision:

Decline to order specific performance against guarantor at the same time as principal obligors; adjourn proceedings until after date for specific performance by obligors.

Catchwords:

SPECIFIC PERFORMANCE – contracts for sale of land and businesses for $61M – director of corporate purchasers gives guarantee – purchasers fail to complete – portion of deposit also unpaid – orders for specific performance made against purchasers –whether specific performance should be ordered against guarantor as well – authorities considered at [57]-[66] – whether concurrent liability of purchasers and guarantor exists – whether guarantor directly liable to vendors – decline to order specific performance by guarantor until after date for specific performance by purchasers – adjourn proceedings.

Cases Cited:

Baeg v Wink Singh Pty Ltd [2024] NSWSC 589

Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 223 CLR 660

Bowman Development Corporation Pty Ltd v Young Forever Property Pty Ltd [2020] QDC 73

Bowman Development Corporation Pty Ltd v Young Forever Property Pty Ltd (No 2) [2020] QDC 77

Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460

Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349

Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250

J C Williamson v Lukey [1931] VLR 221

Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd (2012) 28 BCL 226; [2010] NSWCA 283

McGuinness v Norwich and Peterborough Building Society [2012] 2 All ER (Comm) 265

Paolucci v Makedyn Pty Ltd (2021) 20 BPR 41,749

Ryan v UPG 322 Pty Ltd [2023] NSWSC 1293

Sunbay Projects Pty Ltd v PR Wieland Holdings Pty Ltd [2010] QSC 368

Sunbird Plaza Pty Limited v Maloney (1989) 166 CLR 245; [1988] HCA 11

TullettPrebon (Australia) Pty Ltd v Purcell (2008) 175 IR 424; [2008] NSWSC 852

Texts Cited:

R E Megarry (1960) 76(302) The Law Quarterly Review

Debra Ronan, Conveyancing Law and Practice (2nd ed, 2021, Lawbook Co)

Category:

Costs

Parties:

Taylor Square TT Pty Ltd (First Plaintiff)
Taylor Square Fund Pty Ltd (Second Plaintiff)
Kinselas Pty Ltd (First Defendant)
Kinselas Management Pty Ltd (Second Defendant)
The Courthouse (NSW) Pty Ltd (Third Defendant)
The Courthouse Management Pty Ltd (Fourth Defendant)
Mark Toma (Fifth Defendant)

Representation:

Counsel:
V Whittaker SC/ TJ Boyle (Plaintiffs)
M Pesman SC/ DA Allen (Defendants)

Solicitors:
Arnold Bloch Leibler (Plaintiffs)
Kekatos Lawyers (Defendants)

File Number(s):

2024/189586

JUDGMENT

1. HER HONOUR: In September 2023, the plaintiffs sold the Kinselas Hotel and the Courthouse Hotel in Darlinghurst – both the land and businesses – to the first to fourth defendants for $61 million. The sale was effected by four contracts, in relevantly identical terms. The purchasers’ obligations were guaranteed by the fifth defendant, Mark Toma.

2. The time for completion was six months from exchange, being 18 March 2024, but was later extended to 29 April 2024. Completion did not occur. The vendors sought specific performance, including by the guarantor. On 18 June 2024, the purchasers were ordered to specifically perform the contracts at 2.00 pm on 1 July 2024. The remaining issue is whether the plaintiffs are presently entitled to an order for specific performance against the guarantor, such that Mr Toma ought to be ordered to perform the contracts at the same time as the purchasers.

Evidentiary matters

3. The plaintiffs relied on the evidence of managing director, Christopher Unger; he was not required for cross-examination. Although the defendants had served three affidavits very shortly before the hearing, ultimately the defendants called no evidence. The plaintiffs then tendered a portion of an affidavit by Mr Toma, setting out his business background and dealings. The plaintiffs relied on this material as supporting an exercise of the Court’s discretion in favour of an order for specific performance, where Mr Toma was said to be intimately involved and stood behind the corporate defendants and the group of companies and hotels of which they formed part.

4. To this, Mr Toma submitted that the question of the Court’s discretion only arose if specific performance was available; this material was of no assistance to the Court unless the guarantee applied. Mr Toma did not suggest that, if his construction of the guarantee clause was not accepted, then any discretionary factors pointed against an order for specific performance being made against him. Nor did Mr Toma suggest that the vendors were other than ready, willing and able. In short, the guarantor opposed an order for specific performance on the basis of the proper construction of the guarantee. As such, much of the evidence relied upon by the vendors need not be examined.

The parties

5. The first plaintiff, Taylor Square TT Pty Ltd, owns the land on which the Kinselas Hotel and the Courthouse Hotel are located. The second plaintiff, Taylor Square Fund Pty Ltd, owns the businesses and the assets used in the businesses.

6. On 28 August 2023, the purchasers were incorporated, being Kinselas Pty Ltd, Kinselas Management Pty Ltd, The Courthouse (NSW) Pty Ltd and The Courthouse Management Pty Ltd. Mr Toma was the sole director, secretary and shareholder of each company. Each company has issued share capital of $20.

The contracts

7. On 18 September 2023, four contracts were exchanged.

8. Taylor Square TT entered into a contract for sale of land in respect of the Kinselas Hotel with Kinselas and a contract for sale of land in respect of the Courthouse Hotel with The Courthouse (NSW) (the land contracts).

9. Taylor Square Fund entered into a sale of business agreement in respect of the business of the Kinselas Hotel with Kinselas Management and a sale of business agreement in respect of the Courthouse Hotel with The Courthouse Management (the business contracts).

10. Mr Toma executed each contract for the purchaser and again as guarantor. Each of the contracts included a guarantee by Mr Toma in the same terms, to which I will return at [52].

The deposit

11. The deposit payable under each contract was “10% of the price, subject to clause 64” of the land contracts (or cl 23 of the business contracts). Clause 2 of the general conditions provided:

“2   Deposit and other payments before completion

2.1   The purchaser must pay the deposit to the depositholder as stakeholder.

2.2   Normally, the purchaser must pay the deposit on the making of this contract, and this time is essential.

2.3   If this contract requires the purchaser to pay any of the deposit by a later time, that time is also essential.

…

2.5   The vendor can terminate if –

2.5.1   any of the deposit is not paid on time; …”

12. Clause 64 of the special conditions provided:

“64   REDUCED DEPOSIT

64.1   Despite the provisions of clause 2.1 of this Contract, the Deposit shall be paid in the following instalments:

64.1.1   as to an amount equivalent to 5% of the Price on the date of this Contract; and

64.1.2   an amount equal to 5% of the Purchase Price on or before the earliest of the following to occur:

(a)   The date noted on the front page of this Contract as the date for completion;

(b)   Completion of this Contract; or

(c)   Termination of this Contract by the Vendor for a breach on the part of the Purchaser,

time being of the essence in respect of all payments.

…

64.3   Nothing in this clause shall be taken as restricting the Vendor’s rights under this Contract, or at law.

…”

13. A 5% deposit was paid on exchange, being $3.05 million. Thus, a further 5% deposit was payable on the earlier of 18 March 2024, “Completion” or termination by the vendors: cl 64.1.2. Failure to pay entitled the vendors to terminate.

Date for completion

14. The date for completion was six months after the contract date, that is, 18 March 2024. Clause 15 of the general conditions (land contracts, or cl 1.1, business contracts) provided:

“15   Date for completion

The parties must complete by the date for completion and, if they do not, a party can serve a notice to complete if that party is otherwise entitled to do so.”

15. Clause 40.1 of the special conditions also entitled the vendors to serve a notice to complete if the purchasers had not complied with their obligations on the scheduled Completion Date, in which case, “Service of the notice to complete makes time of the essence”: cl 40.2.

16. Sub-clauses 16.5 to 16.7 detailed the purchasers’ obligations on completion:

“16.5   On completion the purchaser must pay to the vendor –

16.5.1   the price less any –

•   deposit paid;

…

16.7   On completion the deposit belongs to the vendor.”

17. Clause 50.3 of the special conditions also provides that, on Completion, the purchasers were obliged to pay the Balance of the Price plus all adjustments under the contracts by cleared funds in PEXA: cl 50.3.

18. In the event that the contract was not completed on the Completion Date, cl 38.2 of the special conditions in the land contract (cl 5.6(b) in the business contract) provided:

“38.2   Completion of this Contract

If this Contract is not completed by the Completion Date, the Purchaser must pay interest to the Vendor on completion on the balance of the purchase price, calculated daily at the Interest Rate from the Completion Date up to and including the date completion occurs.”

19. The purchasers could extend the date for completion under cl 66 of land contracts (cl 25 of business contracts):

“66   EXTENSION OF COMPLETION DATE AND ELECTION TO SETTLE EARLY

If requested by the Purchaser, the Vendor will agree to extend the Completion Date for a period up to six (6) months provided that:

66.1   Such request by the Purchaser is made within four (4) months of the date of this Contract (time being of the essence); and

66.2   At the time that the Purchaser’s request is made, the Purchaser pays to the Vendor an amount equal to 5% of the purchase price as cleared funds into an account nominated by the Vendor (time being of the essence); and

66.3   The amount paid under clause 66.2 is released to the Vendor immediately on payment without any further authority required from the Purchaser; and

66.4   The Purchaser may only make one (1) request to extend the Completion Date.

…”

Extensions and notices to complete

20. On 28 November 2023, Mr Toma ceased to be a director of the purchasers, and was replaced by John Palasty. This appears to have been part of a broader restructure of multiple companies in which both gentlemen were involved.

21. On 24 January 2024, the purchasers requested an extension of the completion date under cl 66, albeit late. The purchasers’ solicitors sought confirmation that the extension fee was only payable on 18 March 2024. On 21 February 2024, the vendors’ solicitor requested further information, adding that “[a]ny agreement to a variation of the contracts [was] dependent upon payment and release of the $3 million to [the vendors]”. On 22 February 2024, the purchasers’ solicitor requested a three-month extension of settlement, with $3 million to be paid on or before 18 March 2024, to be released to the vendors and deducted from the purchase price.

22. On 29 February 2024, the vendors' solicitor supplied the proposed terms of the extension, relevantly, offering to extend the date for completion up to 17 June 2024 provided that, by 8 March 2024, the purchasers paid 5% of the purchase price, to be released to the vendors. On 5 March 2024, the purchasers’ solicitor replied that the purchasers required until 16 March 2024 to pay the further 5% deposit.

23. On 8 March 2024, the purchasers’ solicitor enquired as to the vendors’ position in relation to the payment of the balance of the deposit on or before 18 March 2024. The vendors’ solicitor repeated their earlier instructions in respect of the proposed extension. Confirmation was sought as to when the additional 5% deposit would be paid. On 14 March 2024, the purchasers’ solicitor sought confirmation that, if the balance of the deposit was paid by 5.00 pm on 15 March 2024, the vendors would agree to extend the settlement date by three months.

24. On 18 March 2024, being the date for completion, the purchasers’ solicitor advised that their clients had changed their position and proposed to release $761,960.64, which had been paid to the selling agent on 15 March 2024, to the vendors. The purchasers were content for the vendors to issue a notice to complete with an expiry date of 30 April 2024, “That in effect will make the contract time of the essence.” The purchasers would be ready willing and able to settle on that date. The vendors’ solicitor replied that the vendors would serve notices to complete, requiring settlement on Monday, 29 April 2024 subject to the release of $761,960.64 and the purchasers paying the interest required under the contracts from the date of the notices to complete until completion. The purchasers agreed.

25. On 19 March 2024, the selling agent released the deposit of $761,960.64 to the vendors. Mr Unger said this left a total of $2,288,039.36 outstanding from the balance of the deposit required under the contracts.

26. On 20 March 2024, the vendors served notices to complete in respect of the four contracts, also addressed to Mr Toma as guarantor, noting that Mr Toma had guaranteed the performance of the purchasers under the contracts, who had failed to complete the purchases on 18 March 2024. The vendors were ready, willing and able to complete the sales. Completion was required before 4.00 pm on Monday, 29 April 2024. If the purchasers did not complete by that time, then the vendors may terminate the contracts, retain the deposits and reserve their further rights under the contracts and at law.

27. It is not necessary to set out the details of the parties’ preparations for completion, including arrangements for handover of the businesses, assignment of leases, transfer of liquor licences or arrangements with employees. Suffice to say that settlement did not take place on 29 April 2024. Mr Toma does not suggest that the vendors were other than ready, willing and able to complete.

28. Two weeks passed. On 16 May 2024, the vendors sought confirmation as to whether the purchasers intended to complete. The purchasers were asked to confirm the position by 17 May 2024, failing which, proceedings would be commenced seeking specific performance by the purchasers and the guarantor. There is no evidence of a response.

29. The next week, on 21 May 2024, the purchasers’ solicitors emailed Liquor & Gaming NSW, copied to the vendors’ solicitor, “Please note that the parties are not going forward with the settlement. … can we rescind the liquor licence transfer application?” According to Mr Unger, the purchasers had still not indicated if or when they intended to complete the contracts, or to pay the unpaid balance of the deposit.

These proceedings

30. The next day, on 22 May 2024, the vendors commenced these proceedings, seeking specific performance, including by Mr Toma as guarantor. The vendors also filed a motion seeking expedition.

31. On 30 May 2024, the defendants’ solicitors sent a lengthy letter, alleging that the hotel leases had been terminated, the tenants had vacated, and the premises and businesses had not been maintained such that the vendors were said to have terminated the contracts by their repudiatory conduct. The purchasers were said to be considering a cross-claim for damages or a set-off in circumstances where the vendors were said to have misrepresented the value of the contracts. The purchasers wished the proceedings to proceed by way of pleadings in order to ventilate these issues. In addition, the purchasers sought $600,000 as security for costs.

32. On 31 May 2024, the vendors’ motion for expedition was heard and granted. The parties agreed to deal with the question of specific performance on the summons, preserving the purchasers’ rights to seek damages by cross-claim later if need be. The matter was listed for hearing on 18 June 2024. The purchasers were directed to file and serve any evidence by 14 June 2024.

33. On 14 June 2024, Rory Gallagher made an affidavit for the defendants. He was the proposed manager of the two hotel businesses.

34. On 17 June 2024, the parties served written submissions. The purchasers’ written submissions noted that two further affidavits would be relied on, being by Mr Toma and Mr Palasty, both dated that day. Suffice to say that these affidavits, together with the affidavit of Mr Gallagher, spanned a wide range of subjects. Three propositions were advanced by the defendants: specific performance was not available against the guarantor given the terms of the guarantee; an order for specific performance would be futile as neither the purchasers nor Mr Toma were in a position to complete; further, it was said that the vendors had contributed to the purchasers’ inability to complete.

35. On 18 June 2024, the hearing commenced. The defendants’ senior counsel informed the Court at the outset that the issues to be decided had “concertinaed considerably this morning” such that the defendants would not read any evidence and the purchasers would neither consent nor oppose the orders for specific performance. The only issue to be considered was the construction of the guarantee given by Mr Toma. The vendors’ senior counsel had been informed “an hour ago”. As mentioned, at the conclusion of the hearing, orders were made for specific performance by the purchasers.

Submissions

36. The vendors submitted that, whilst there was no extant obligation on the purchasers to pay the outstanding purchase price, there was an extant liability to pay the outstanding deposit. Clause 64 created an obligation to pay the balance of the deposit by 18 March 2024. That had not been complied with. There had been a default to pay an amount of money. Under the guarantee, this gave rise to an obligation to pay the outstanding deposit. There was currently a specifically enforceable promise within the contract to do so. None of this was affected by general condition 2.5, which concerned the vendors’ entitlements if they chose to terminate the contract. Instead, the vendors had come to the Court, not to ask the Court to extend the date of completion, but for specific performance by a date.

37. Further, the vendors submitted that “the minute” that the corporate defendants did not complete the contracts on 1 July 2024, then the guarantor had a concurrent liability to pay the purchase price as well. The second sentence in cl 60.2 of the guarantee was said to crystallise this obligation such that, at that moment, the guarantor and corporate defendants would be concurrently liable for the outstanding purchase price. The vendors would return to the Court and seek an order for specific performance against the guarantor the day after settlement did not occur. In these circumstances, it was not premature to make an order for specific performance against the guarantor with respect to the outstanding deposit. It would also be open to make a conditional order of specific performance against the guarantor where specific performance can occur under the supervision of the Court. In modern times, this was a programming issue involving both the corporate defendants and the guarantor being a party to a PEXA settlement.

38. Mr Toma submitted that the case against him must be premised on an obligation on him to pay the purchase price pursuant to his guarantee. That premise was not established. There was a general distinction between a guarantee to pay if the debtor does not (“Answer For”) and an undertaking that the debtor will perform the contract (“See To”). The first is answerable in debt while the second is answerable in damages: Sunbird Plaza Pty Limited v Maloney (1989) 166 CLR 245; [1988] HCA 11 at [6], 255 (Mason CJ). The first sentence of cl 60.2 was a promise to see that the contract was performed, while the second sentence was a promise to pay a debt due and payable. Neither promise provided a basis to order specific performance against Mr Toma. If the promise to see to it that the contract was performed was breached, then Mr Toma was liable in damages commensurate with the loss occasioned by the breach. The promise to pay a debt was an obligation to pay, if the purchaser did not, the price in accordance with the terms of the contract. That obligation was to pay “upon completion”: cl 16.5, land contracts. If there has been no completion, then the obligation to pay has not arisen: Sunbird at [8] (per Gaudron J), at [2] (per Mason CJ). In the result, the Court ought not order Mr Toma to perform a promise that he is not contractually obliged to perform until there is a conveyance without the purchase price being paid.

36. Mr Toma further submitted that the obligation to pay money was not an obligation to pay the purchase price but an obligation to pay the purchase price if it was not paid. The words, “may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser” qualified the rights of the Vendor. The qualification was that the Vendor many take action upon default of the Purchaser. The reasons for making an order for specific performance against a guarantor in Ryan v UPG Pty Ltd [2023] NSWSC 1293 were said to be specific to the guarantee in question. There was a failure to pay the purchase price, so the ratio in Sunbird that there was no breach because time for payment had not arrived, did not apply: at [71]-[73]. Parker J relied on a “critical factor”, that the guarantor was liable as principal, to differentiate Sunbird and to hold that the guarantor’s obligation was concurrent with the purchasers: at [77]. Further, quia timet relief could be granted. The relief granted in Ryan was premised on the guarantor being presently liable as a principal to pay the purchase price; see also Baeg v Wink Singh Pty Ltd [2024] NSWSC 589 at [8] (per Parker J).

37. Mr Toma submitted that the vendors were not entitled to an order for specific performance against the guarantor as he was not a principal to the contract. Those were the terms of the guarantee that had been agreed between parties. The only entitlement under the guarantor was to sue Mr Toma for damages or debt. Whilst that may be an unfortunate commercial outcome, that was the consequence of the language chosen by the parties which inexorably led to that conclusion. The same position would pertain whether the corporate defendants completed on 1 July 2024 or not.

38. Mr Toma also complained that the summons sought specific performance of the contracts, not the obligation to pay the deposit. There was no reference to the deposit other than to the extent that it formed part of the purchase price. Nor did the pleadings allow the Court to make an order to account for the eventuality that the corporate defendants may not specifically perform. If the obligation on the guarantor was a monetary obligation, it was recoverable as a liquidated debt; there was no claim in the summons for damages or in debt. (In reply, the vendors submitted that specific performance of this more limited obligation was accommodated by the summons, which sought orders for specific performance of the contracts in their entirety. Self-evidently, the deposit obligations were under that contract.)

Unpaid deposit

42. It is convenient to first consider the implications of non-payment of the remaining deposit of $2,288,039.36. The purchasers were obliged to pay a 10% deposit by two equal instalments. The first instalment was paid on exchange of contracts. The second instalment was payable on 18 March 2024.

43. Only a portion of the second instalment was paid, being $761,960.64. That portion was released to the vendors, under the re-negotiated extension of the completion date under cl 66. Specifically, the amount payable by the purchasers under cl 66.2 was reduced. That reduced amount was released to the vendor under cl 66.3. The emails by which the terms of the extension were varied do not suggest that the purchasers were expected to pay the remaining $2,288,039.36 before the extended date for completion, to be released to the vendors, but simply that interest would be paid on the unpaid portion under cl 38.2.

44. Although the parties agreed to vary the terms on which the completion date would be extended under cl 66, entertaining a request made after the deadline and agreeing to accept less than 5% of the purchase price being paid and released to the vendors, the obligation to pay the balance of the deposit under cl 64.1.2 remained. Failure to pay the remaining $2,288,039.36 on 18 March 2024 entitled the vendor to terminate the contracts: cl 2.5. Clearly enough, the vendors do not wish to exercise that right but, rather, to have the contracts performed.

45. The outstanding deposit is to be paid to the depositholder as stakeholder (cl 2.1), only belonging to the vendor on completion: cl 16.7. Absent termination, the vendors are not entitled to damages for breach of that obligation. Absent completion, the deposit does not belong to the vendors either.

46. Clause 9 of the general conditions, as amended by cl 34.1(g) of the special conditions, provides that, if the purchaser does not comply with the contract, or a notice under or relating to the contract, in an essential respect, then the vendor can terminate the contract and, after termination, keep or recover the deposit up to 10% of the price and sue the purchaser “and the Guarantor” for any deficiency on re-sale, related expenses or to recover damages for breach of contract. Again, enforcement of the vendors’ rights in respect of the unpaid deposit of $2,288,039.36 – including against the Guarantor – are predicated by the vendors terminating the contracts, which had yet to occur.

47. It is difficult to see why the vendors would be entitled to specific performance of the purchasers’ obligations to pay the unpaid deposit of $2,288,039.36, either against the purchasers or the guarantor. Accepting that orders for specific performance are common in contracts for the sale of land, where each parcel of land is unique, and may also be ordered for the purchase of a particular business, “One area where it is rare to find an order for specific performance is where the outstanding obligation is to pay money”: Debra Ronan, Conveyancing Law and Practice (2^nd ed, 2021, Lawbook Co) 719 at [23.700]-[23.720].

48. As Leeming JA explained in Paolucci v Makedyn Pty Ltd (2021) 20 BPR 41,749, in requiring the performance of a contractual term, equity is acting in aid of the plaintiff’s legal rights: at [16], citing J C Williamson v Lukey [1931] VLR 221 at 298. However, “… equity will not intervene to grant the remedy unless there is some good ground for doing so … It is thus necessary for the plaintiff to prove that damages are not an adequate remedy. … This is the major hurdle that a claimant seeking specific performance must overcome”: at [17], quoting R E Megarry (1960) 76(302) The Law Quarterly Review. In Lucas Stuart Pty Ltd v Hemmes Hermitage Pty Ltd (2012) 28 BCL 226; [2010] NSWCA 283, Campbell JA observed, “The only justification for equity ever involving itself in providing a remedy for breach of a common law obligation is if the remedy provided by the common law is inadequate”: at [5]; see likewise Bankstown City Council v Alamdo Holdings Pty Ltd (2005) 223 CLR 660 at [11] (per Gleeson CJ, Gummow, Hayne & Callinan JJ).

49. As to whether damages are an adequate remedy, the test is whether it is just in all the circumstances that the plaintiff should be confined to damages: Coulls v Bagot’s Executor & Trustee Co Ltd (1967) 119 CLR 460 at 503 (per Windeyer J) (“the remedy, damages, cannot satisfy the demands of justice”); Tullett Prebon (Australia) Pty Ltd v Purcell (2008) 175 IR 424; [2008] NSWSC 852 at [97] (per Brereton J), quoting Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 at 379 (per Sachs LJ), followed in Paolucci v Makedyn at [17].

50. To the extent that a deposit is a part-payment of the purchase price, it is difficult to see why damages are not an adequate remedy. To the extent that a deposit is a surety or guarantee of performance by the purchaser, I accept that in the circumstances of a particular case, damages may not be an adequate remedy, albeit I have not been able to find a case where a purchaser was ordered to specifically perform the obligation to provide a deposit.

The guarantee

51. It is next convenient to consider the guarantor’s obligations. As the vendors have not terminated the contracts, the guarantor’s obligations under cl 9 need not be considered further.

52. Clause 60 of the land contracts contained the guarantee, where Guarantor was defined to mean “all directors of the purchaser company”: cl 60.1. At the time the contracts were exchanged, Mr Toma was the only director. Clause 60.2 provided:

“60.2   Guarantee

The Guarantor guarantees to the Vendor prompt performance of all of the obligations of the Purchaser contained or implied in this Contract. If the obligation is to pay money, the vendor may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person.”

53. The parties agreed that the first sentence of the guarantee could fairly be described as a “see to it” obligation, that is, an undertaking by the guarantor that the principal obligor will perform their contract with the obligee. The guarantor’s obligations described in the first sentence of cl 60.2 are not limited to monetary obligations but extend to all obligations of the purchasers under the contracts. To the extent that those obligations are monetary in nature, then the vendors may “immediately recover the money from the Guarantor” without first enforcing their rights against the purchasers. The manner in which the vendors are entitled to enforce those monetary obligations against the Guarantor are also specified, being recovery as a liquidated debt, that is, an action in debt. Where the purchasers’ unperformed obligation was non-monetary, the guarantor’s obligation may not be so limited.

54. However, as Mason CJ noted in Sunbird at 255:

“… a creditor's rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.”

55. That is, the vendors’ remedy against Mr Toma under the first sentence of the guarantee is ordinarily damages, where “failure by the debtor to perform his contract puts the guarantor in breach of his”: at 256. Similarly, Gaudron J observed in Sunbird at 271:

“The guarantee does not in terms oblige the [guarantors] to pay the balance [of the] purchase price in the event of the purchaser's failure to complete the contract. … a promise of “performance by the … purchaser of all the terms and conditions of the contract including the payment of all moneys payable …” does not, standing alone, import an obligation that the [guarantors] will themselves pay the balance purchase price if the purchaser fails to do so. Such an obligation, if it exists, must be spelt out from the word “guarantee” in its particular contractual setting.”

56. An obligation on Mr Toma to pay the balance of the purchase price, in the event that the purchasers fail to do so, is not “spelt out” in cl 60.2 either. On the face of it, should the purchasers fail to complete the purchase on 1 July 2024, then Mr Toma is not contractually obliged under the terms of guarantee to provide funds to enable the contracts to be completed but, rather, is liable to the vendors, either in debt or for damages, for the consequences of the purchasers’ non-performance of their contractual obligations.

Specific performance against purchaser and guarantor

57. A guarantee in similar terms to cl 60.2 was considered in Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250, where the vendor sought specific performance against the purchaser and guarantors. Daubney J concluded that the claim for specific performance against the guarantors was “at the very least, premature”: at [28]. Having regard to Sunbird, his Honour concluded that the guarantors’ obligation to guarantee the purchaser’s performance of its obligations, including the obligation to pay the balance of the purchase price on settlement, sounded in damages, while the obligation to pay the money remained executory, becoming payable on settlement, which was yet to occur: at [35]-[36]. Further, at [39]:

“It seems to me that the pursuit of an application for specific performance against the guarantors at this point in time sits ill with the applicant’s request for a decree of specific performance against the first respondent. … making an order requiring the guarantors to “pay and perform the obligations” of the first respondent under the contract at a time when the first respondent itself is subject to a decree that it perform its own obligations would cause immediate and wholly undesirable tensions to arise both in respect of the legal consequences (eg whether, and to what extent the guarantors are subrogated to the rights and responsibilities of the purchaser under the contract of sale) and in the practical consequences of the court simultaneously ordering two discrete parties (ie the purchaser and the guarantors) separately to perform the same obligations under the same contract at the same time.”

Daubney J ordered specific performance by the purchaser but dismissed the claims against the guarantors as premature “at this juncture”: at [40]-[41].

58. A vendor sought specific performance against the purchaser and guarantor in Sunbay Projects Pty Ltd v PR Wieland Holdings Pty Ltd [2010] QSC 368, where the guarantee was dissimilar to the clause considered in Fairborne, set out at [68]:

“30.2   Each Guarantor confirms his request for the Seller to enter into the Contract, accepts all obligations specified in the Contract, agrees to be bound as a party to the Contract and signs the Contract as a Deed.

30.3   Each Guarantor agrees that they are liable jointly and severally to the Seller if the Buyer breaches the Contract. The Guarantor agrees to pay the seller any money for the Seller’s loss resulting from the breach.

…

30.5   The Seller may recover from the Guarantors damages for the Seller’s losses in enforcing this guarantee.

30.6   The Guarantor indemnifies the Seller against any liability, loss and costs incurred by the Seller resulting from the Buyer’s breach of the Contract.”

59. Lyons J was satisfied that the guarantor was obliged to pay damages in the event that the purchaser did not fulfill its obligations, but less convinced that the guarantor was obliged to specifically perform the contract for sale: at [69]-[73]. Her Honour followed Fairborne, ordering specific performance against the purchaser but not against the guarantor, where such relief was premature “because a guarantor should not be compelled to do something until the principal has failed”: at [74].

60. In Bowman Development Corporation Pty Ltd v Young Forever Property Pty Ltd [2020] QDC 73, the guarantor’s obligations were different again, set out at [34],[36]: (emphasis added)

“By Clause 1

The guarantor, as a principal obligor and not merely as surety, irrevocably and unconditionally guarantees to the seller (and indemnifies the seller in respect of) the due and punctual performance of all the obligations of the buyer under or arising out of the contract including (without limitation): (a) the prompt payment of all amounts payable by the buyer under the contract; (b) the prompt performance of all other obligations of the buyer under the contract.

…

By Clause 4

4.   The seller may require the guarantor to make a payment or perform any other obligation of the buyer under or arising out of the contract: (a) without first asking the buyer to do so; and (b) irrespective of whether such payment or other obligation would be enforceable against the buyer.”

61. Following Fairborne, Judge Barlow accepted the tension involved in ordering two parties “to perform the same obligation under the same contract at the same time”; orders should only be made against the guarantors should it become necessary if the purchaser failed to comply with an order for specific performance against it: at [47]-[48]. However, his Honour did not consider it appropriate to dismiss the proceedings against the guarantors, being “mindful of the need to do complete justice between the parties [and to] resolve the real issues … at a minimum of expense”: at [49]. As it may cause complications to fashion orders against the guarantors that would only take effect if the purchaser did not comply with the decree for specific performance, Judge Barlow adjourned the claim against the guarantors until after the purchaser was obliged to complete: at [50-[52]. His Honour subsequently made orders for specific performance against the guarantors: Bowman Development Corporation Pty Ltd v Young Forever Property Pty Ltd (No 2) [2020] QDC 77.

62. This brings us to Ryan v UPG. Orders for specific performance were sought against the purchaser and guarantor. Like the guarantee in Bowman, the guarantee provided, “This guarantee and indemnity is given by each Guarantor as a principal”: extracted at [67]. As Mason CJ noted in Sunbird, “a contract of guarantee is … a collateral contract to answer for the debt, default or miscarriage of another … the courts have emphasised the difference between the guarantor’s secondary liability and the indemnifier’s primary liability”: at 254. It would appear that the draftspersons in Bowman and Ryan sought to make both the purchaser and guarantor’s liabilities a primary liability.

63. In Ryan, Parker J noted that the clause providing that the guarantor’s obligation was as principal and differed to the guarantee considered in Sunbird; this was a “critical factor”: at [73], [77]. Parker J considered that this guarantee was of the type identified by Patten LJ in McGuinness v Norwich and Peterborough Building Society [2012] 2 All ER (Comm) 265 at [7], being “a concurrent liability with the debtor for what is due under the contract of loan”: McGuinness at [59]; Ryan at [77]. The form of guarantee had much to commend it in terms of the business commonsense, at [74]:

“[Otherwise] before the time for specific performance by [the] purchaser arrives, there is no obligation on the guarantor. Afterwards, the obligation arises if title is transferred, but that is meaningless because the transfer will only take place if the purchase price is paid by the purchaser, in which case there is no ongoing obligation on the part of the purchaser to which the guarantor’s obligation can attach. If, on the other hand, the purchaser fails to comply with the order for specific performance, then … all the vendor can do is terminate the contract and sue the guarantor (as well as the purchaser) for loss-of-bargain damages. … there would never be any point at which it could be said that there was an enforceable obligation on the guarantor to pay the purchase price.”

64. Nor did Parker J consider that the Court was obliged to grant specific performance in a two-stage process, as in the Queensland authorities: at [86]-[87]. Rather, at [88]:

“… I see no difficulty at all in making an order against both the purchaser and the guarantor requiring them both, jointly and severally, to pay the purchase price, together with contractual adjustments, on settlement. The PEXA platform allows for a purchaser’s financier to participate in the settlement so as to provide the money. … that similar arrangements could be made for the guarantor to be a party to the settlement transaction so that, if the purchaser were unable to pay, the guarantor could make up the difference.”

65. His Honour also noted that the Court retained power to give directions as to the manner in which the settlement was to proceed, if any doubt or dispute arose; “There is of course no difficulty in making the orders at this point rather than waiting.”: at [89]. Parker J ordered the contract to be specifically performed by the purchaser and guarantor, directing both to pay the balance of the monies due under the Contract at the Settlement Date: at [96].

65. In Baeg v Wink Singh Pty Ltd [2024] NSWSC 589, Parker J made orders in the same terms, where the guarantee again specified that the guarantee was “a principal obligation of the guarantor”: extracted at [9]. His Honour summarised Ryan at [8]:

“… I concluded that where the guarantor has undertaken a direct liability to the creditor, coordinate with that of the principal debtor, specific performance may be granted requiring the guarantor to pay the purchase price on settlement. Such coordinate liability will generally have been assumed where the guarantor contracts ‘as principal’ …”

67. Clause 60.2 does not so provide. Of course, it does not automatically follow that the purchasers and guarantor do not have a concurrent liability, nor that the guarantor does not have a direct liability to the vendors. Nor does it follow that the vendors may not ultimately persuade the Court that they are entitled to an order for specific performance against the guarantor, should the purchasers fail to specifically perform the contracts. But it does mean that I am not satisfied that the vendors are entitled to an order for specific performance against the guarantor now, before the time for specific performance by the purchasers has come and gone.

68. Nor as I prepared to conclude whether the vendors are entitled to an order for specific performance by Mr Toma at all, under the terms of his guarantee, as I am asked to do by Mr Toma. This issue was inadequately canvassed at the hearing. This was, perhaps, not surprising given the multiplication of issues sought to be raised by the purchasers the day before the hearing began, and the rapid contraction of those issues an hour before the hearing commenced. I do not criticise the defendants’ learned senior counsel at all, indeed I am grateful. But fairness dictates that the vendors have an appropriate opportunity to contend otherwise, having failed in their application for an order that Mr Toma specifically perform the contracts at the same time as the purchasers.

69. Consistent with the course taken in Bowman, I consider the appropriate course is to stand these proceedings over until after the date for specific performance, at which time the vendors can inform the Court whether the contracts have been performed and, if not, whether the vendors wish to seek specific performance against the guarantor. In the event that the vendors do not wish to pursue such an application, then the parties can also confer in the meanwhile as to appropriate costs orders.

Orders

70. For these reasons, I make the following orders:

1. Stand the proceedings over to 9.30 am on 12 July 2024.

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Decision last updated: 28 June 2024