The Co-operative Building Society of South Australia v Andrew Kephala, Peter John Cowley and Edcom Real Estate Pty Ltd No. SCGRG 302 of 1991 Judgment No. 3632 Number of Pages 4 Guarantee and Indemnity

[1992] SASC 3632

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA ANDERSON J

CWDS
Guarantee and indemnity - Terms of agreements prohibit enquiry as to plaintiff's means of realizing securities (ex tempore reasons annexed hereto) - plaintiff's claim established by Certificates and Declarations made pursuant to agreement between parties - plaintiff's method of calculation correct - judgment for plaintiff against the first defendant (judgment in default of an appearance entered against the second and third defendants on 24/6/91). Pendleberry v Colonial Mutual Life Insurance Ltd (1912) 13 CLR 676; Forsyth v Blundell (1973) 129 CLR 477 at 493; ANZ v Carnegie Unreported decision of the Supreme Court of Victoria, delivered 16 June 1987; Westpac Banking Corporation v Kingsland Unreported decision of the Supreme Court of NSW, delivered 22 August 1991 and Darlington Futures v Delco (1986) 68 ALR 385 at 391, applied.

HRNG ADELAIDE, 31 August - 3 September 1992 #DATE 25:9:1992
Counsel for plaintiff:     Mr S H Milazzo
Solicitors for plaintiff:    Piper Alderman
Defendant Kephala:         In person
Other defendants :         No attendance

ORDER
Judgment for plaintiff.

JUDGE1 ANDERSON J The plaintiff building society lent monies to Bervale Pty. Ltd. as to the sum of $1.232m on 24 January, 1989 and as to the sum of $286,700 (it being agreed that the sum pleaded in paragraph 5 of the statement of claim is incorrect) on 31 August, 1989. Each loan was to be repaid by 28 February, 1990. The loans were made pursuant to Deeds of Loan bearing the dates mentioned. 2. The defendants, by Guarantees dated 24 February, 1989 and 31 August, 1989 jointly and severally guaranteed payment to the plaintiff of all monies owing by Bervale Pty. Ltd. to the plaintiff. Bervale Pty. Ltd. failed to make interest payments as required from December 1989 to February 1990 and by written notice to Bervale Pty. Ltd. the plaintiff declared all of the monies lent due and payable by notice of 23 February, 1990. None of those monies had been repaid when proceedings issued against the defendant guarantors for all sums then owing by Bervale Pty. Ltd. which was then in liquidation. 3. Since that time the plaintiff has entered into possession of several properties given as security in the first Deed of Loan and has sold them. The nett funds have been credited to the defendants' account with the plaintiff. 4. The third defendant is in liquidation and the plaintiff has entered a default judgment against the second defendant. These proceedings are, therefore, alive only against the first defendant. He was represented by solicitors until a few days before trial whereafter he represented himself. 5. It is convenient to refer to the course of the trial because it is related to the first defendant acting for himself. 6. Mr. Milazzo, for the plaintiff, sought to prove the indebtedness of the first defendant by making use of a procedure aiding proof set out in paragraph 10 of the Guarantee. Its terms are:
    "A certificate by any one of the Lender's officers as
    to the amount owing to and/or liabilities incurred by the Lender
    to or on account of the Borrower and that such amount is due
    shall be accepted by the Guarantor as prima facie evidence
    thereof (except in the case of manifest error) and any payment
    to the Lender by or on behalf of the Borrower on account of the
    liability whether for advances or interest or charges or
    otherwise whatsoever and any acknowledgement by acquiescence in
    account or otherwise by or on behalf of the Borrower of such
    liability shall operate as an acknowledgement of the liability
    of the Guarantor according to the terms thereof." 7. Mr. Sheedy, an officer of the plaintiff Company ("the Lender") was called for this purpose. Through him were tendered Certificates in accordance with Clause 10 of the Guarantee. Those certificates showed the indebtedness of the first defendant in relation to each of the first and second loans as $132,317.39 and $429,903.44 respectively. The plaintiff relied upon them as prima facie proof of its claim. 8. In the interests of economy I then permitted Mr. Kephala to cross-examine Mr. Sheedy so as to enable the plaintiff to be aware of the first defendant's position. This seemed more expedient than having the plaintiff taking what may have been some days of sitting time trying to anticipate the first defendant's position and counter it in examination-in-chief. 9. It was apparent from this cross-examination that Mr. Kephala's principal defence was as to the method by which the plaintiff realized the security to which I have referred and consequentially credited the allegedly inadequate proceeds obtained therefrom to the loan account. He also foreshadowed complaints concerning the nature of other expense type debits made thereto. 10. After this cross-examination had proceeded for some time Mr. Milazzo submitted that as a matter of law the terms of the Guarantee did not permit this course to be taken by the first defendant. For the reasons indicated in my ex tempore reasons of 2 September, 1992 (a copy of which is annexed hereto), I upheld that submission and struck out paragraphs 12.01 to 12.08 inclusive and 12.13 of the defence. That left paragraphs 12.09 to 12.12 of the defence which relate to matters of interest rates and other financial calculations of the sum due. Mr. Kephala was given an adjournment to consider his position in regard to these paragraphs. 11. Upon resumption he agreed that the calculations in the plaintiff's Certificates were arithmetically correct although he disputed the basis upon which they were made (p.91). 12. Mr. Kephala submitted that the effect of Clause 3.5 of the first Deed of Loan and 3.6 of the second, where it provides that: "... The Society may after the expiration of a period of one year from the date of first drawdown of the Loan of any part thereof in its absolute discretion from time to time and at any time without prior notice to the Borrower increase or decrease the Prescribed Rate of Interest ..." did not mean that interest rates could be varied without any notice. From the evidence of Mr. Sheedy it is apparent that as each loan was in arrears when it became due on 28 February, 1990 no further notices were sent to the "Borrower", Bervale Pty. Ltd. It is common ground that no notices were sent to the guarantors. Mr. Kephala submitted that notice was required in order to allow either or both of the borrowers or guarantors to have the opportunity to rearrange finance. 13. As the loans were in arrears no regular statements revealing interest adjustments were sent. That the interest applicable to the loan was adjusted from time to time is not in doubt. As much is established by the declarations made pursuant to Clauses 3.6(b) and 3.5(b) in relation to the respective loans. These declarations are in evidence as exhibits P4 and P5 and are, pursuant to the agreement between the parties to the loans (which include the plaintiff and the first defendant herein), "final and conclusive". 14. There is no basis for Mr. Kephala's submission that the rates which he described in his cross-examination of Mr. Sheedy as "exorbitant" (p.104) were so. The unpaid interest was capitalized in accordance with Clause 3.4 (3.3 second loan) and interest was then varied after the expiry of the term of the loan in accordance with Clause 3.6 (3.5 second loan). The Certificates have been used to do the work to which I have referred. 15. The Deeds are silent about the notice of any change in interest rates being given to the guarantors. No obligation to that effect can be read into those documents and there can be no substance to the submission by the first defendant that the words "without prior notice to the Borrower" really means "with some notice to the guarantors". 16. In the course of the evidence Mr. Kephala complained that when the plaintiff realized some securities it did not correctly apply the proceeds thereof against the second loan which had been used for the development of a property given as security against the first loan. This has an adverse consequence to the first defendant in that the interest rate charged in relation to the second loan was for a short time higher than that applicable to the first. As I indicated, when the matter was raised a second time immediately prior to Mr. Kephala commencing his evidence, I am unable to see that he has any proper basis for complaint as the realized property was security for the first loan and that is the loan against which the proceeds were credited. 17. When Mr. Kephala gave evidence he was critical of the manner in which the proceeds of the realized security were credited to the debt. His contention was that those proceeds should have been taken from principal first and then from interest. No expert evidence was called as to the usual or correct accounting procedure in this regard. It was agreed that should there be substance in this submission any consequential calculation would take place after the delivery of these reasons in a manner akin to an account. 18. Mr. Milazzo maintained that the plaintiff had made an error in favour of the defendants when crediting the proceeds of two securities realized in that the course proposed by the first defendant had in fact been adopted by the plaintiff in error when it was not required by the documents. He did not seek to vary the Certificates tendered. He further submitted that the Certificates were a complete answer to the first defendant's assertion. 19. In my opinion, that submission is correct. I have previously mentioned the defendants having agreed to the terms of Deeds of Loan. The provisions of Clause 3.4 clearly refer to a single sum as being due, being the loan and unpaid interest in relation thereto and ongoing interest. Clause 10 refers simply to "the amount owing". Again a single sum. That the plaintiff for internal book-keeping reasons kept a manual loan ledger in the form of exhibit D20 showing both loan and principal running balances does not assist the first defendant. It is notable that the final entry on that exhibit is for 28/3/92 and that the entry for that date and the Certificate tendered in relation to that first loan shows the same balance due at that time. In my opinion, the plaintiff was entitled to account in the form of the Certificates and for reasons previously given the first defendant may not go behind them or the Declarations. 20. I am not able to find that the debit of $17,710 of 18 January, 1990 against the second loan, having regard to the admission in the defence in relation to the extent to which that loan was drawn down (see paragraph 5.1), was incorrect or unauthorized. That debit did not take that loan past its limit and was used as the precise interest payment then due on the first loan. What, if any, instruction to the plaintiff may have been forthcoming from Bervale Pty. Ltd. is not known. 21. At the end of the day I am unable to do other than be satisfied the plaintiff has discharged the onus upon it and it is entitled to judgment in the aggregate of the sums certified in the Certificates, being $132,317.39 and $429,903.44 equalling $562,220.83. 22. I shall hear the parties as to any consequential orders.