Terence Lane-Mullins v Warrenby Pty Limited - [2004] NSWSC 817

No judgment structure available for this case.

CITATION: Terence Lane-Mullins v Warrenby Pty Limited & Ors [2004] NSWSC 817

HEARING DATE(S): 19.12.03, 05.02.04, 13.02.04; 17.02.04, 12.03.04; 14.05.04

JUDGMENT DATE:
7 September 2004

JUDGMENT OF: Nicholas J

DECISION: Para 61

CATCHWORDS: Application for summary dismissal of claims for declaratory relief - Unconditional or on-demand bank guarantee - Construction of guarantee - Principle of autonomy - Whether vendors' entitlement to payment under guarantee affected by underlying contract for sale and purchase of land - Whether any exception to privity of contract doctrine - Whether payment to vendors would be an unjust enrichment - Whether relief available under s 55(2A) Conveyancing Act 1919 (NSW)

LEGISLATION CITED: Conveyancing Act 1919 (NSW) s 55(2A)

CASES CITED: Boral Formwork v Action Makers [2003] NSWSC 713
Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153
Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159
General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125
Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545
Intraco Ltd v Notis Shipping Corporation (1981) 2 Lloyds Rep 256
Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268
Pearson Bridge (NSW) Pty Ltd v State Rail Authority [1982] 1 AustConstLR 81
Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158
Romanos v Pentagold Investments Pty Ltd (2003) HCA 58
Super League Pty Ltd v Newcastle International Sports Centre Trust (NSWSC, 27 October 1995, Unreported)
Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107

PARTIES :
Terence Lane-Mullins - Plaintiff
Warrenby Pty Limited - First Defendant
Vernor Pty Limited - Second Defendant
City Smart Investments Pty Limited - Third Defendant

FILE NUMBER(S): SC 6138/03

COUNSEL: R Killalea - Plaintiff
M A Bradford - Defendants

SOLICITORS: Coustas & Co - Plaintiff
Mary Khoury, Solicitor - Defendants

IN THE SUPREME COURT
OF NEW SOUTH WALES
EQUITY DIVISION

Nicholas J

7 September 2004

6138/03 Terence Lane-Mullins v Warrenby Pty Limited & Ors

JUDGMENT

1 His Honour: By notice of motion filed 9 December 2003 Warrenby Pty Limited, the First Defendant, and Vernor Pty Limited, the Second Defendant (the Vendors) seek an order under SCR Pt 13, r 5 that the Plaintiff’s claim be dismissed, alternatively an order that the Plaintiff provide security for their costs, and ancillary orders. By consent, the claims for security for costs and other orders were deferred pending determination of the claim for dismissal.

2 At the time of the filing of the notice of motion the Plaintiff’s claim was by amended summons filed 7 March 2003. However, by the time of final submissions the relevant pleading had become the fourth amended summons, leave to file which was given on 14 May 2004, and it is the claims pleaded in that document which fall for consideration.

Background

3 The following history is common ground and provides for the better understanding of these proceedings.

4 The Plaintiff and Ms Marsha Foxman are, and at all relevant times were, directors of City Smart Investments Pty Limited (CSI) the Third Defendant. In early January 2002 there were negotiations between the Vendors and the Plaintiff, Ms Foxman and CSI as purchasers regarding put and call options for the sale and purchase of 24 lots situated at 9-13 Beresford Road, Strathfield on which it was proposed to construct strata units.

5 On 15 January 2002 the Plaintiff arranged with HSBC Bank Australia Limited (the Bank) to provide to the Vendors its guarantee for the payment to them by the Plaintiff of a maximum amount of $461,500.00 as the deposit under a contemplated contract for the sale and purchase of the lots. The Plaintiff deposited that sum with the Bank. The guarantee document of that date described the purchaser as CSI. Apparently this was not acceptable to the Vendors which required that, in addition to CSI, the Plaintiff and Ms Foxman be named as purchasers in the document.

6 Accordingly, the Plaintiff arranged for the cancellation of the guarantee and for the provision of another. Relevantly, by its letter of offer dated 24 January 2002, the Bank offered to provide a guarantee facility for a limit of $461,500.00 for the purpose of providing a deposit guarantee for the purchase of the property in which each of CSI, Ms Foxman and the Plaintiff were referred to as the purchaser. The offer was accepted.

7 On 31 January 2002 the Bank provided the guarantee which has become the subject of these proceedings. Consistently with the terms of the offer the purchasers are named as CSI, Ms Foxman and the Plaintiff and otherwise the document is in the same terms as the earlier guarantee. Its terms are set out later in these reasons.

8 On 12 February 2002 call option agreements were made between the Vendors and CSI, Ms Foxman and the Plaintiff as purchasers of the 24 lots into which the property was to be subdivided. In evidence was the agreement in respect of lot 20 the terms of which were identical to those in respect of the other lots. It recited that the Vendors were in the process of purchasing and becoming the registered proprietors of the property, and had agreed to grant an option to purchase it to CSI, Ms Foxman and the Plaintiff. The option fee payable was described in cl 1.1 as the sum equivalent to 5% of the purchase price being $19,250.00. Clause 2.2 was in these terms:

“2.2 Upon the payment of the Option Fee by the Purchaser to the Vendor, the Option Fee will become the legal and equitable property of the Vendor subject to the provision that if the Purchaser exercises the Option as set out in clause 2.1 above, the Option Fee will form part of the Deposit under the Contract”.

9 In due course the purchasers assigned their rights under the agreements in respect of four of the lots to other parties who proceeded to completion with the Vendors. These proceedings do not concern those transactions.

10 The date of registration of the strata plan was 18 December 2002 after which, and in accordance with the call option agreements, the options were exercised.

11 On or before 30 December 2002 pursuant to the call option agreements the purchasers nominated CSI to exercise the options to purchase the remaining 20 lots, which lots are described in Schedule 1 to the fourth amended summons. (In evidence was the nomination notice in respect of lot 20 which was identical to those in respect of the other lots).

12 By separate contracts each dated 30 December 2002 (the contract) the Vendors agreed to sell to CSI as purchaser the remaining 20 lots, each for the price of $385,000.00. The contract was in the standard form, 2000 edition, and included a number of special conditions and attachments. The amount of the deposit in each case was $19,250.00 being 5% of the purchase price. (In evidence was the contract in respect of lot 20 which was in similar terms to those in respect of the other lots). Relevant terms are set out later in these reasons.

13 On 15 January 2003 the occupation certificate was approved and it appears that it was issued either then or on 16 January 2003.

14 By the notice to complete to CSI dated 3 February 2003 the Vendors required completion of the purchase on or before 3pm, 18 February 2003, and made time of the essence failing which it asserted entitlement to terminate the contract. A similar notice was given in respect of the other transactions. Settlement did not take place by the nominated time and date.

15 The solicitors for the Vendors sent to CSI a notice of termination of each contract dated 21 February 2003.

16 By its statement of claim filed 21 March 2003 (No. 1544/03) CSI sought orders against the Vendors for the cancellation and delivery up of the guarantee, alternatively relief in respect of the deposit pursuant to s 55(2A) Conveyancing Act 1919 (NSW), and other relief. In support of its claims it alleged that the Vendors had repudiated the contracts by terminating them in reliance upon notices to complete served before time for completion had occurred pursuant to their terms and conditions.

17 On 12 September 2003 Master Macready found, and it was conceded, that CSI was unable to meet an order for costs if it was unsuccessful in the proceedings. He ordered the proceedings be stayed unless CSI provided within 28 days of 12 September 2003 security for costs in the sum of $30,000.00 in appropriate form and for the provision of further security in the sum of $40,000.00 six weeks before the date fixed for hearing.

18 On 15 December 2003 by reason of CSI’s failure to comply with the orders made by the Master, and upon the Vendors’ application the court pursuant to SCR Pt 53, r 4 ordered that CSI’s claims against the Vendors be dismissed.

19 In the present proceedings the Plaintiff’s claims raise issues substantially similar to those in the proceedings which have been dismissed. In short, declaratory relief is sought firstly on the basis that the Vendors are not entitled to claim the moneys under the guarantee for the deposits under the contracts of 30 December 2002 because the contract to which the guarantees referred was different as to the identities of the purchasers and as to the subject property. In the alternative, and on the basis that the guarantee was referable to the contracts of 30 December 2002, declaratory relief was sought on grounds that the Vendors had wrongfully terminated the contracts and were not entitled to the deposits under them and/or that in such circumstances they were not entitled to the guaranteed funds the payment of which would result in their unjust enrichment at the Plaintiff’s expense and/or that, in the circumstances, pursuant to s 55(2)A Conveyancing Act 1919 (NSW) the deposit should be returned to the Plaintiff.

20 In essence the basis for the relief sought is that the Vendors are not entitled to demand payment under the guarantee for which the funds were provided by the Plaintiff where the contract has been invalidly terminated.

21 Since about December 2003 the Vendors have threatened to make demand upon the Bank for payment of the amount under the guarantee. From time to time since 15 December 2003 the Vendors have undertaken to the court not to make such demand. The present situation is that on 13 February 2004 the Vendors through their counsel undertook to the court not to call on or otherwise deal with moneys payable under the guarantee until the proceedings under their notice of motion filed 9 December 2003 has been heard and determined by the court, or until such other time as agreed between the parties. The undertaking was given without admissions.

The documents

22 The guarantee dated 31 January 2002 from the Bank to the Vendors is in these terms:

“At the request of Terence Gerard Lane-Mullins (the “Client”), HSBC Bank Australia Limited (the “Bank”) guarantees payment to you by the Client up to a maximum of AUD$461,500.00 inclusive of interest (the “Maximum Amount”) in connection with deposit guarantee for the purchase of the property at 9-13 Beresford Road, Strathfield NSW 2135 (Purchaser: City Smart Investments Pty Ltd A.C.N. 098 925 609, Marsha Foxman & Terence Gerard Lane-Mullins).

The Bank hereby undertakes to pay you upon receipt of your first written demand the whole or any part of the Maximum Amount, such payment to be made without reference to the Client and despite any notice given by the Client to the Bank not to make the payment.

The Bank may at any time discharge its obligations under this guarantee, whether or not required by you to do so by paying you the Maximum Amount or such lesser amount as you may agree.

This guarantee is to be governed by and construed in accordance with the laws of New South Wales.

This guarantee is not transferable or assignable.

Upon expiry of this guarantee please return this document to the Bank for cancellation.

Dated at Sydney this 31 day of January 2002”.

The contract

23 The contract dated 30 December 2002 for the sale and purchase of the lots as between the Vendors and CSI included the following provisions:

“2 Deposit and other payments before completion

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

Normally

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

cheque

solicitor

cheque

terminate

2.6 If the vendor accepts a bond or guarantee for the deposit, clauses 2.1 to 2.5 and 3 do not apply.

2.7 If the vendor accepts a bond or guarantee for part of the deposit, clauses 2.1 to 2.5 and 3 apply only to the rest of the deposit.

termination

…

9 Purchaser’s default

terminate

serving

termination

9.1 keep or recover the deposit (to a maximum of 10% of the price);

…

29 Conditional contract

29.1 This clause applies only if a provision says this contract or completion is conditional on an event.

29.2 If the time for the event to happen is not stated, the time is 42 days after the contract date.

…

Special Conditions:

1. Completion hereof is conditional upon:

…

(ii) Completion by the vendors of thirty-eight strata residences to be built upon part of the subject land in accordance with the building plans attached hereto and in accordance with council approval for same.

…

Fourth amended summons

24 By the fourth amended summons the Plaintiff claims:

25 The subsequent claims are for declaratory relief in the alternative to the abovementioned claim. Their preface is in these terms: “In the alternative, if the Guarantee is applicable referable to the Contracts”, and the pleading proceeds with the following claims:

(2) Declarations, on alternative grounds, that each and all of the contracts were wrongfully terminated by the Vendors.

(3) A declaration that the Plaintiff is entitled as against the Vendors to the funds guaranteed by the guarantee as the Vendors would be: (i) enriched; (ii) enriched at the Plaintiff’s expense; and (iii) unjustly enriched if they were to obtain any or all of the $461,500.00 held under the guarantee for reason that (sic) the vendors wrongfully terminated the contract “for each of the reasons of (a) Special Condition 1(ii) not being satisfied and/or (b) time not being of the essence (for reason of Notices to Complete not being effective to make time of the essence – being invalid Special Condition 5 refers)”.

(4) A declaration pursuant to s 55(2A) Conveyancing Act 1919 (NSW) or pursuant to equitable principle that the court finds it fit, or equitable, that the deposit be returned to the Plaintiff.

26 Although the Defendants rely upon all of the grounds under SCR Pt 13, r 5(1)(a), (b) and (c) the only ground which is appropriate and available is under sub-para (a) to contend that the fourth amended summons discloses no reasonable cause of action. The proceedings were conducted on that basis. It is accepted that the relevant test for summary dismissal is that the case of the Plaintiff is so clearly untenable that it cannot possibly succeed (General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 pp 129-130).

The guarantee

27 I turn first to the claim for a declaration in respect of the guarantee.

28 It appears that the guarantee was provided whilst negotiations were taking place which resulted in the call option agreement dated 12 February 2002. The limit of the amount payable under the guarantee, the amount of $461,500.00 happens to correspond with the total amount payable under the call option agreements had the options been exercised in respect of 24 lots being the sum of $462,000.00. Otherwise the evidence does not establish the circumstances in which the Plaintiff arranged for the provision of the facility on 31 January 2002.

29 For the Plaintiff, Mr Killalea of counsel explained that the basis for the relief sought turned upon the proper construction of the instrument and, in particular, of its opening paragraph which states:

“At the request of Terence Gerard Lane-Mullins (the “Client”), HSBC Bank Australia Limited (the “Bank”) guarantees payment to you by the Client up to a maximum of AUD$461,500.00 inclusive of interest (the “Maximum Amount”) in connection with deposit guarantee for the purchase of the property at 9-13 Beresford Road, Strathfield NSW 2135 (Purchaser: City Smart Investments Pty Ltd A.C.N. 098 925 609, Marsha Foxman & Terence Gerard Lane-Mullins)”.

30 He submitted that these words, properly construed with regard to the whole of the instrument, mean that the operation of the guarantee is conditional upon the existence at the time of demand for payment of a contract for the sale and purchase of the whole of the property at 9-13 Beresford Road, Strathfield between the Vendors and CSI, Ms Foxman and the Plaintiff. Their effect is that the guarantee may only be relied upon by the Vendors in the case of purchase of the property by the nominated purchasers. It was put that the purpose of the guarantee was to provide funds for the deposit payable under what was said to be a specified contract, and not otherwise, so that the non-existence of such a contract at the time of demand would prevent effect being given to the demand for payment. It was put that upon its proper construction the guarantee is not available to the Vendors in respect of any other transaction. Thus it was put that it is ineffective to operate for the provision of funds for deposits payable under the contracts dated 30 December 2002 for the sale of the 20 remaining lots by the Vendors to CSI. It was submitted that in the circumstances the Vendors have no right to make demand on the Bank, and the Bank is under no obligation to make payment because there is no contract for the purchase of the property by the purchasers identified in the document.

31 Mr Killalea said that there is no warrant to read the guarantee other than in its own terms. It was not put that there was ambiguity in the words relied on which would justify resort to evidence of pre-contractual conduct to clarify the objective aim of the guarantee or the meaning of any descriptive term, (Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 para 24) alternatively that the condition should be implied.

32 A relevant principle of construction is that post-contractual conduct is not admissible on the question of what a contract means as distinct from the question of whether it was formed. There is also the principle that the construction of a contract is an objective question for the court, and the subjective beliefs of the parties are generally irrelevant in the absence of any argument that a decree of rectification should be ordered or an estoppel by convention found (Brambles paras 26, 27).

33 In any event, the only evidence of conduct prior to the date of issue of the guarantee on 31 January 2002 was that the Plaintiff arranged for it to be issued at the Vendors’ request in lieu of the earlier guarantee which named only him as purchaser. In my opinion, in the circumstances, the task of construction does not require reference to that evidence and even if it did it would not assist. Evidence as to subsequent matters such as the call option agreement of 15 February 2002 is not admissible as an aid to construction of the guarantee.

34 In Boral Formwork v Action Makers [2003] NSWSC 713 Austin, J described the characteristics of instruments such as bank guarantees, performance bonds and letter of credit. Although the context was his consideration of the principle of autonomy and its exceptions it is, with respect, helpful to refer to the following passages:

“35 Bank guarantees and performance bonds are similar to standby letters of credit, in that the financier undertakes an obligation to pay the beneficiary on receipt of documentation, but frequently the documentation is nothing more than a demand for payment up to the stipulated amount. Typically the financier's obligation is expressed to be "unconditional" as well as irrevocable. Again, these instruments have some similarities with a guarantee, but they are primary obligations expressed to be unconditional once a demand is made in accordance with the instrument.

35 A bank guarantee which is payable without the presentation of documents such as one which states it is payable on demand notwithstanding any objection by the applicant is sometimes referred to as a “first-demand” or “on-demand” guarantee. Thus neither proof of the beneficiary’s entitlement to the amount of the guarantee nor the presentation of conforming documents are required. It has been said that the on-demand bank guarantee resembles the “suicide” or “guillotine” standby letter of credit due to the applicant’s helpless position on the credit once the credit is opened and the bank is, in effect, a mere custodian of the beneficiary’s funds (A. Mugasha, “The Law of Credit and Bank Guarantees”, 2003 pp 21, 22; 74, 75).

36 The commercial significance of an unconditional or on-demand bank guarantee was explained in Wood Hall Limited v Pipeline Authority (1979) 141 CLR 443 in which the High Court of Australia upheld the entitlement of the beneficiary to make demand for, and to receive, payment. Stephen, J said (p 457):

“Their Honours were, with respect, entirely correct in their conclusion that none of the four guarantees is, by any process of implication or construction, to be deprived of the unqualified operation which its express words dictate. Not only does the clear, indeed empathic, language of these guarantees preclude the introduction of any such qualification: to introduce such a qualification would be to deprive them of the quality which gives them commercial currency. Once a document of this character ceases to be equivalent of a cash payment, being instantly and unconditionally convertible to cash, it necessarily loses acceptability. Only so long as it is "as good as cash" can it fulfil its useful purpose of affording to those to whom it is issued the advantages of cash while involving for those who procure its issue neither the loss of use of an equivalent money sum nor the interest charges which would be incurred if such a sum were to be borrowed for the purpose. Being "as good as cash" in the eyes of those to whom it is issued is essential to its function”.

37 In Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 at pp 170-171 Lord Denning, MR described performance guarantees as “virtually promissory notes payable on demand” except where there is a clear fraud of which the bank has notice. In the same vein in Intraco Ltd v Notis Shipping Corporation (1981) 2 Lloyds Rep 256 at p 257 Donaldson, LJ said:

“ … Irrevocable letters of credit and bank guarantees given in circumstances such that they are the equivalent of an irrevocable letter of credit have been said to be the lifeblood of commerce. Thrombosis will occur if, unless fraud is involved the Courts intervene and thereby disturb the mercantile practice of treating rights thereunder as being the equivalent of cash in hand”.

Hortico (Australia) Pty Ltd v Energy Equipment Co

(Australia) Pty Ltd

Boral

Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd

Construction of the guarantee

38 The first paragraph is a preamble which recites that the Bank guarantees the payment by the Plaintiff of an amount up to a maximum of $461,500.00, which is described as being “ … in connection with deposit guarantee for the purchase of the property at 9-13 Beresford Road, Strathfield NSW 2135 (Purchaser: City Smart Investments Pty Ltd A.C.N. 098 925 609, Marsha Foxman & Terence Gerard Lane-Mullins)”.

39 The task is to determine whether or not, when one construes this guarantee as a whole, the result is that it was a condition of the agreement, or at least that it was arguable that it was a condition of the agreement, that at the time of demand there was a contract for the sale and purchase of the property between the Vendors and the nominated purchasers.

40 By the terms of the next sentence the Bank undertakes to pay the Vendors upon receipt of their “first written demand” the whole or any part of the maximum amount specified. In my opinion it is clear that by these terms the obligation to pay arises upon receipt of the Vendors’ first written demand, and is unconditional. This conclusion is reinforced by the remaining words of the sentence the effect of which is that the payment is to be made without reference to the Plaintiff and notwithstanding any objection by him.

41 As pointed out by Austin, J in Boral (para 47):

Wood Hall

42 In the circumstances of this case the obligation of the Bank is to perform what is required of it under the guarantee which is to pay simply upon demand. On the true construction of the instrument there is nothing which qualifies the payment obligation by, for example, a requirement for the provision of documents to the Bank, or by reference to an underlying contract or arrangement between the Vendors and the Plaintiff.

43 For the Plaintiff’s submission to succeed in my view it would be necessary to interpret the preamble as a requirement for the provision by the Vendors to the Bank of evidence of the contract which is said to be described in it, or otherwise to demonstrate the existence of such contract at the time demand for payment is made.

44 In my opinion the submission must be rejected. The words of the preamble are incapable as a matter of construction of being understood as a qualification to the Bank’s contractual obligation to pay upon demand. There is no indication at all in the instrument that the promise to pay was to be conditional upon the existence of the contract said to be described. Indeed, it is not evident from the preamble that it was the intention of the parties to link the amount guaranteed to the requirement for a deposit under any particular contract. Nevertheless, whatever the preamble might be interpreted to mean, I am satisfied that it does not operate to make the Bank’s promise conditional, or to qualify the Vendors’ right at any time to demand payment. To hold that the Bank should not pay on receiving a demand, but should be bound to enquire as to the existence of a contract of the kind described in the submission would be to depart from the ordinary meaning of the undertaking that the Bank is to pay on demand. It would be contrary to the settled rules governing the implication of terms in contracts to imply provisions that would contradict the ordinary meaning of the words of the guarantee in this way (cf. Wood Hall per Gibbs, J at p 451).

45 In addition to imposing upon the Bank an unconditional obligation to pay on demand, the guarantee provides the Bank with an unconditional entitlement to pay the Vendors at any time notwithstanding that no demand has been made. This is clear from the words of the third paragraph which are:

“The Bank may at any time discharge its obligations under this guarantee, whether or not required by you to do so by paying you the Maximum Amount or such lesser amount as you may agree”.

46 As a matter of construction this provision is unaffected by the words of the preamble. The Bank’s right to pay is expressed to be exercisable at any time, and is unconditional. As is apparent, there is no requirement that payment under that right is to be deferred until such time as a contract is made or which precludes the exercise of that right if there is no such contract. The construction for which Mr Killalea contended is entirely inconsistent with the proper construction of this provision and invites an unwarranted departure from the ordinary meaning of the entitlement of the bank to discharge its obligations at any time whether or not it has been required to do so.

47 It follows that in my opinion the Bank’s obligation to pay on demand and its entitlement to discharge its obligation at any time whether or not demand is made, are unaffected by the existence or non-existence of any contract for the sale and purchase of the property in whole or in part and the identities of the parties to it. Whatever the arrangement was between the Plaintiff and the Vendors as at 31 January 2002, the Plaintiff caused the Bank to provide an on-demand guarantee to the Vendors the purpose of which was to make available to them a cash equivalent of $416,500.00. Its terms conform with the terms of the “suicide” instrument referred to in para 35, and have the same effect.

48 It appears that the guarantee was provided whilst the Plaintiff and the Vendors’ representatives were engaged in negotiations concerning the sale and purchase of land which involved quite a large sum of money. It may be inferred that they had commercial experience. Had they wished they may have negotiated a different arrangement whereby funds were made available to the Vendors, or the Plaintiff may have arranged with the Bank to provide a different guarantee under which the payment obligation and the discharge entitlement were conditional. These things did not happen. Instead, it is apparent from the terms of the guarantee that at the time it was provided it was the intention of the Vendors and the Plaintiff that the Bank should pay the Vendors up to the maximum amount on demand, or at any time if it wished to do so. Doubtless this means of making funds available to the Vendors was in order to facilitate some commercial negotiations or arrangements between them and the Plaintiff.

49 For the above reasons I hold that the Plaintiff’s case on the construction of the guarantee must inevitably fail and should be dismissed.

The alternative claims

50 The other claims for declaratory relief are on the basis, as pleaded, that “the guarantee is applicable referable to the contracts”. Having regard to this form of pleading I understood Mr Killalea to submit that the guarantee, as a matter of construction, incorporated by reference the contract the terms of which were said to restrict the Vendors from exercising what would otherwise be their unconditional entitlement to insist on payment under the guarantee, alternatively, that although not a party to it, the Plaintiff is entitled as against the Vendors to rely upon the contract to contest their entitlement under the guarantee.

51 The submissions for the Plaintiff may be summarised as follows. Under the contract the parties proceeded on the basis that the guarantee met the requirement for the deposit under condition 2.6. The contract was wrongfully terminated by the Vendors whereby they were not entitled to claim the deposit and consequently were not entitled to demand payment under the guarantee. The Plaintiff provided the funds to the bank for the guarantee which would be lost to him if payment was made to the Vendors under it. It was said that on the authority of Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 the plaintiff had sufficient interest to afford him standing to demonstrate that the vendors were not entitled to the deposit under the contract and therefore were not entitled to demand payment under the guarantee.

52 I have earlier held that the guarantee is unconditional and that the words of the preamble, on their true construction, do not operate to make the Bank’s promise to pay conditional, or to qualify the Vendors’ right at any time to demand payment. Although the preamble says that the payment is “in connection with deposit guarantee for the purchase of the property” in my opinion, as a matter of construction it does not import the terms of a contract for the purchase of the property, or of any contract, into the guarantee (cf. eg, Barclay Mowlem Construction Ltd v Simon Engineering (Australia) Pty Ltd (1991) 23 NSWLR 451). It follows that the claims cannot be sustained on the ground that the contract is incorporated in the guarantee.

53 Nor can the claims be sustained on the alternative ground. There is an exception to the principle of autonomy where there is an underlying contract between the applicant for the guarantee and the beneficiary which restricts the beneficiary’s power to demand payment under the guarantee. These exceptions are considered in, for example, Boral and Hortico. Cases in which particular contracts were held to be within the exception include Pearson Bridge (NSW) Pty Ltd v State Rail Authority [1982] 1 AustConstLR 81 and Barclay.

54 In the present case there is no such contract and that is sufficient for it to be held that these claims are untenable. However, for the Plaintiff it is said that it is arguable that in the circumstances the Vendors are not entitled pursuant to condition 9.1 of the contract to keep or recover the deposit provided under condition 2, and if that is established the Vendors are not entitled to payment under the guarantee.

55 There are insurmountable obstacles to acceptance of the submission. Firstly, the Plaintiff derives no legal or equitable right under the contract and has no standing to claim relief against the Vendors in respect of their performance under it (Super League Pty Ltd v Newcastle International Sports Centre Trust (NSWSC, 27 October 1995, Unreported) at pp 17, 18) and Trident provides no assistance. The contract does not provide a benefit to the Plaintiff as a third party and is not an exception to the privity of contract doctrine by which only the parties to a contract are bound by, and entitled to enforce, its terms. Secondly, it is not open on the evidence to find that the contract is an underlying contract which operates as an exception to the principle of autonomy which applies to this guarantee. That is to say, there is no collateral or underlying agreement between the Plaintiff and the Vendors under which resort to the guarantee is made conditional. Thirdly, there is nothing in the contract which is referable to the guarantee. In particular, condition 2, which relates to the provision of a deposit either in cash or by way of bond or guarantee, and condition 9.1, which enables the Vendors to keep or recover the deposit upon termination, are silent as to the Vendors’ entitlement to make a demand for payment under the on-demand guarantee. It is clear that the entitlement of the Vendors to make demand is unaffected by the terms of their contract with CSI (cf. Wood Hall per Stephen, J p 459). In the circumstances the claims are misconceived.

56 As to the claim for relief on the issue of unjust enrichment it is unnecessary to recite the competing submissions. It cannot be said that a payment made to the Vendors under the guarantee either upon their demand or by the Bank in exercise of its right to pay at any time would be a benefit unjustly received. No question of unjust enrichment can arise where the Vendors are paid the moneys which the Plaintiff arranged to be provided to them unconditionally, and unaffected by any underlying contract with them. In my opinion the claim is manifestly groundless.

57 The Plaintiff also claims a declaration that he is entitled to recover the deposit said to have been provided under the contract pursuant to an order under s 55(2A) Conveyancing Act (1919) NSW. Section 55(2A) provides:

“(2A) In every case where the court refuses to grant specific performance of a contract, or in any proceeding for the return of a deposit, the court may, if it thinks fit, order the repayment of any deposit with or without interest thereon”.

58 Mr Killalea submitted that the power of the court under the section, properly construed, to order repayment is not confined to making orders on the application of a purchaser but extends to making such an order on the application of, and for payment to, a stranger to the contract such as the Plaintiff who was the source of funds for the deposit. In support he referred to the phrase “There are no words of limitation expressed in the section … “ taken from a statement of Jacobs, J in Horne v Zebra Motor Inn Pty Ltd (NSWSC, 12 September 1963, Unreported) with which statement Street, CJ in Eq. agreed in Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 at p 272.

59 Section 55 is within Div 1, Pt 4 of the Act the provisions of which apply to contracts for the sale of land and to the rights and obligations of vendors and purchasers under them. The payment of a deposit is to secure the due performance of a contract for the sale of land, a matter which may be seen to be of special importance in a contract concerned with the development of the land, as here. (Romanos v Pentagold Investments Pty Ltd (2003) HCA 58 paras 19, 20, 54). It is sufficient to say that, upon its proper construction s 55 and, in particular s 55(2A), provides no exception to the privity of contract doctrine so as to afford a third party, such as the Plaintiff, the same right as it gives to a purchaser to sue for the recovery of a deposit. Furthermore, when the phrase taken from Horne is read in context it will be plainly apparent that it provides no support for the case sought to be made. Indeed, but a few lines further down the page from where the phrase appears, Street ,CJ in Eq. observes that the section was designed to provide relief to a purchaser against an unjust and inequitable consequence of forfeiture of a deposit (p 272E). He then proceeds to explain the extent of the discretionary supervision of monetary adjustments between parties to a contract pursuant to s 55(2A). The submissions on behalf of the Plaintiff must be rejected and, in my opinion, the claim is also manifestly groundless.

60 A declaration is also sought on an alternative ground to the effect that upon the application of “equitable principle” (sic) the Plaintiff is entitled to an order for the return of the deposit. In respect of this claim my conclusion is the same as for the other claims and for the reasons given in respect of them considered together. There is no equitable principle of which I am aware which warrants the intervention of the court in the circumstances of this case.

61 In para 15 of his written submissions dated 12 February 2004 Mr Bradford, for the Vendors, stated that if these proceedings are dismissed the Vendors will call on the Bank for payment under the guarantee but any such call will be limited to an amount equal to the deposits payable under the contracts for the units listed in Schedule 1 of the summons together with interest thereon at the contractual rate of 8% as from the date of exchange. In those circumstances I did not understand the Plaintiff to press the claim for the declaration sought in para 8 of the fourth amended summons that the Vendors were not entitled to claim moneys under the guarantee in respect of the contracts for the sale of the lots in Schedule 2 to the pleading, and therefore it is unnecessary for me to rule on it.

62 For the above reasons I am satisfied that the Vendors have demonstrated that the Plaintiff’s claims for relief as pleaded in his fourth amended summons are so clearly untenable that they cannot possibly succeed and have thus met the test for summary dismissal under General Steel Industries Inc. Accordingly the Vendors are entitled to an order under SCR Pt 13, r 5 that these proceedings be dismissed.

63 There remains outstanding the question as to any continuation of the undertaking given to the court on behalf of the Vendors on 13 February 2004, and the question of costs. In the circumstances it is appropriate that I direct the Vendors to bring in short minutes and afford the parties the opportunity to address me in relation to costs. Arrangements should be made with my Associate by 17 September 2004 for the re-listing of the matter.

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Last Modified: 09/20/2004

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Citations

Terence Lane-Mullins v Warrenby Pty Limited [2004] NSWSC 817

Cases Citing This Decision

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Cases Cited

7

Statutory Material Cited

1

General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69

Rankin Investments (Qld) Pty Ltd v CMC Property Pty Ltd [2021] QCA 156

CITATION:	Terence Lane-Mullins v Warrenby Pty Limited & Ors [2004] NSWSC 817
HEARING DATE(S):	19.12.03, 05.02.04, 13.02.04; 17.02.04, 12.03.04; 14.05.04
JUDGMENT DATE:	7 September 2004
JUDGMENT OF:	Nicholas J
DECISION:	Para 61
CATCHWORDS:	Application for summary dismissal of claims for declaratory relief - Unconditional or on-demand bank guarantee - Construction of guarantee - Principle of autonomy - Whether vendors' entitlement to payment under guarantee affected by underlying contract for sale and purchase of land - Whether any exception to privity of contract doctrine - Whether payment to vendors would be an unjust enrichment - Whether relief available under s 55(2A) Conveyancing Act 1919 (NSW)
LEGISLATION CITED:	Conveyancing Act 1919 (NSW) s 55(2A)
CASES CITED:	Boral Formwork v Action Makers [2003] NSWSC 713 Brambles Holdings Ltd v Bathurst City Council (2001) 53 NSWLR 153 Edward Owen Engineering Ltd v Barclays Bank International Ltd [1978] QB 159 General Steel Industries Inc v Commissioner for Railways (1964) 112 CLR 125 Hortico (Australia) Pty Ltd v Energy Equipment Co (Australia) Pty Ltd (1985) 1 NSWLR 545 Intraco Ltd v Notis Shipping Corporation (1981) 2 Lloyds Rep 256 Lucas & Tait (Investments) Pty Ltd v Victoria Securities Ltd [1973] 2 NSWLR 268 Pearson Bridge (NSW) Pty Ltd v State Rail Authority [1982] 1 AustConstLR 81 Reed Construction Services Pty Ltd v Kheng Seng (Australia) Pty Ltd (1999) 15 BCL 158 Romanos v Pentagold Investments Pty Ltd (2003) HCA 58 Super League Pty Ltd v Newcastle International Sports Centre Trust (NSWSC, 27 October 1995, Unreported) Trident General Insurance Co. Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107
PARTIES :	Terence Lane-Mullins - Plaintiff Warrenby Pty Limited - First Defendant Vernor Pty Limited - Second Defendant City Smart Investments Pty Limited - Third Defendant
FILE NUMBER(S):	SC 6138/03
COUNSEL:	R Killalea - Plaintiff M A Bradford - Defendants
SOLICITORS:	Coustas & Co - Plaintiff Mary Khoury, Solicitor - Defendants