The Colonial Mutual Life Assurance Society Limited v Bernold Glaser and Paul Edmond Popowski No. 4259 Judgment No. SCGRG 93/933 Number of Pages 7 Guarantee and Indemnity Practice

[1993] SASC 4259

COURT IN THE SUPREME COURT OF SOUTH AUSTRALIA BURLEY J

CWDS
Guarantee and indemnity - Application by plaintiff pursuant to guarantees for summary judgment - prima facie case made out by plaintiff but defendants' affidavits disclose arguable grounds of defence - defendants given leave to defend.
Practice - Principles applicable to a claim for summary judgment - admissibility of evidence - same as Rules relating to admissibility of evidence at trial - applies to both plaintiff and defendants. Supreme Court Rules 25.01 (SA) and Lawrence v Griffiths (1987) 47 SASR 455, applied.

HRNG ADELAIDE, 13 September, 29 October 1993 #DATE 9:11:1993
Counsel for plaintiff:     Mr. D. Clayton QC
   with Mr. Clayton
Solicitors for plaintiff:    Finlaysons
Counsel for defendants:     Mr. N. Rochow
Solicitors for defendants: Magarey and Magarey

ORDER
Plaintiff's application for summary judgment refused.

JUDGE1 BURLEY J This is an application for summary judgment pursuant to Rule 25.01 of the Supreme Court Rules. The plaintiff claims that it lent the sum of $3,290,000 to West Tax (SA) Pty. Ltd. (the Company) and that the defendants, by a series of guarantees, guaranteed the company's obligations to repay the loan. The company is now in liquidation. The plaintiff's claim amounts to $1,193,850.70. The full loan to West Tax consisted of four advances as follows:- "Date Amount 23.12.88 $200,000 31.3.89 $2,800,000 15.6.89 $170,000 22.6.89 $120,000 Total $3,290,000" 2. The plaintiff has not sought to recover from the guarantors in respect of the fourth advance of $120,000 on the 22nd June 1989. 3. The affidavit of Mr Dau, the manager for South Australia and Northern Territory of the plaintiff, sworn on 24th May 1993, reveals that the loan of $3,290,000 was secured by mortgages registered over Real Property situated at Torrensville and Norwood. The Torrensville land was owned by a company in which the defendants had an interest and the Norwood property was acquired by a company called Elrington Financial Network Ltd (EFN). These properties have been sold pursuant to powers of sale contained in the mortgages and have realised a gross amount of $1,176,149.30. The amount claimed in these proceedings does not include the fourth advance of 22nd June 1989. The sum of $1,993,850.70 comprises the sum of the first three advances less the gross amount realised on the mortgagee sales. The plaintiff relies upon loan agreements and guarantees entered into respectively in December, March and June 1989, copies of which are exhibits 3, 4 and 5 to the affidavit of Mr Dau. I am satisfied that they evidence loan agreements between the plaintiff and the company and guarantee agreements executed by, among others, the two defendants, in respect of the liabilities the subject of the loan agreements. 4. Paragraph 3 of the first loan agreement, which is also incorporated into the second and third loan agreements, provides that the principal sum shall become due and payable if a petition is presented for the winding up of the company. I am satisfied that the plaintiff has established that event of default, although I note that the defendants contend that the company should not have been wound up. 5. If the affidavits relied upon by the plaintiff are taken in isolation I am satisfied, that as at 21st October 1992, the company was indebted to the plaintiff in the sum of $1,193,850.70, that an event of default has taken place under the guarantees and, if those guarantees are enforceable, the defendants are liable as guarantors to the plaintiff in that sum. 6. The defendants contend that the company is not indebted to the plaintiff as alleged or at all. They rely upon representations allegedly made by or on behalf of the plaintiff to the company prior to the execution of the loan agreements and to the defendants prior to the execution of the guarantee agreements. Mr Rochow, who appeared for the defendants at the hearing of the application on 29th November, said that the nature of the opposition by the defendants to the plaintiff's claim is set out in exhibit 8 to the affidavit of the 2nd defendant sworn on 22nd June 1993. That document is a statement of claim filed in the Federal Court in an action where the company was applicant and the plaintiff was respondent. It is therein alleged that the plaintiff engaged in misleading and deceptive conduct relating to the loans and that the company is entitled to declarations under section 87 of the Trade Practices Act (Cth.), that the company was not indebted to the plaintiff, that the plaintiff was estopped from demanding any further sums of money from the company and an order varying the terms of the documents evidencing the loan agreements to limit the plaintiff's right of recovery to the amounts realised under the mortgage securities. It was not contended by the plaintiff that the defendants were unable to rely upon grounds of defence available to the company. 7. The defendants accepted that it was not sufficient merely to point to a pleading in order successfully to oppose the application for summary judgment. Admissible evidence needs to be considered if the prima facie case made out by the plaintiff as referred to above is not to be given effect to. 8. Before turning to the facts I should say something of the principles applicable to applications for summary judgment. In Civil Procedure paragraph 25.01.5 the learned author says:- "Under Rule 25.01 the Court is only concerned to ascertain whether the defendant is shown to have a good defence on the merits whereas under Rule 25.02 the Court has a discretion to dispose of the action summarily: Lawrence v Griffith 1987 47 SASH 455 ...". 9. I respectfully agree with that statement of the law. In essence what the Court must do is ascertain whether or not the grounds of defence relied upon by the defendant are spurious. If they are not, the application for summary judgment will be dismissed and the defendant directed to file a defence. If the grounds relied upon are found to be spurious then the plaintiff will be given liberty to enter judgment to the extent that the plaintiff has established a liability. 10. The further affidavits relied upon by the defendants are those of the 1st defendant sworn on 27th August 1993 and of the 2nd defendant sworn on 9th September 1993. At an earlier hearing of the application objections were taken by each counsel as to the admissibility of certain parts of the affidavits relied upon. On that occasion it was accepted by counsel (in my view quite properly) that questions of admissibility were to be determined by reference to admissibility of evidence at trial as opposed to an interlocutory application. It has always been clear that the plaintiff must establish a case by such admissible evidence: cf. Settlement Wines Co. Pty. Ltd. v National and General Insurance Co. (1988) 146 LSJS 150. However, the position has not been so clear in so far as the defendant's evidence is concerned. In my view, whatever may have been the position under order 14 of the 1947 Rules, it would be anomalous if the plaintiff was required to prove its case by direct evidence and the defendants were able to establish grounds of defence by evidence admissible by reference to the Rules relating to interlocutory hearings. In my opinion, such an approach would detract from the obvious intention of Rule 25.01, namely to enable a plaintiff to obtain judgment where only spurious grounds of defence are put forward. The process of maintaining a spurious defence is assisted by the ability on the part of such a defendant to adduce other than the best evidence in support of the grounds of defence. It might be said that a defendant, in having to marshall his or her defences in opposition to an application under Rule 25.01, may not have the time nor the resources quickly to gather the appropriate admissible evidence. If that be the case, resort may then be had to the Rules, in a proper case, for extensions of time so that unfairness might be avoided. 11. The affidavit of Mr Glaser reveals that he first became associated with the plaintiff in about 1988. At that time he and Mr Popowski were engaged in business as tax agents, financial advisers and insurance agents in partnership and through shareholdings in the company. He said that Mr Popowski provided tax and financial advice and his main task was to sell insurance. It is apparent that prior to 1988 Mr Glaser had been selling insurance for various companies for about 8 years. He said that he had a variety of jobs prior to selling insurance. He had undertaken training as an insurance agent from about 1981, although he said that he did not have any legal training or experience with the interpretation and understanding of complicated legal documents. Such an assertion is somewhat difficult to understand because it is a notorious fact that policies of insurance may often be complicated. 12. Paragraph 7 and 8 of Mr Glaser's affidavit are as follows:-
    "7. In or about the middle of 1988, Mr Cal Heath ("Heath")
    who was at the time the sales manager for the plaintiff for the
    State of South Australia approached West Tax with a view to West
    Tax selling the plaintiff's products. At the time of the
    approach, West Tax did not sell any of the plaintiff's products,
    but both Popowski and myself were highly successful insurance
    salesmen; in my third year as an agent selling insurance for
    South British and new Zealand Insurance, I was amongst the top
    10 life insurance agents for that company in Australia; in the
    fourth and fifth years that I was with New Zealand Insurance, I
    was among the top 5 agents for that company in Australia; in my
    sixth year of selling insurance for new Zealand Insurance I was
    in fact the top agent for that company in Australia and
    following the formation of West Tax at or about the time that
    Heath approached West Tax for the purposes of enticing it to
    sell the plaintiff's products, Popowski and myself were amongst
    the top 10 life insurance agents for New Zealand insurance in
    Australia and amongst the top ranking agents for Adriatic Life
    Insurance Company in Australia - during the 1988 year, Popowski
    and myself in conjunction with agents working for West Tax
    obtained approximately $700,000 worth of premiums for Adriatic
    Life Insurance Company and about $500,000 worth of premiums for
    new Zealand Insurance, as well as premiums for other companies
    (apart from the plaintiff) for whom we sold products. 8. Heath
    approached us with an offer of a $200,000 interest free loan
    which would require us to sell what at that stage was an
    insignificant amount of business for the plaintiff. Heath
    informed us that the loan would at all times be secured against
    the real estate and the real estate that would be used in this
    case was the Torrensville property." 13. Mr Glaser went on to say that a matter which influenced his decision to be associated with the plaintiff was a policy of insurance offered by the plaintiff known as "A15". He said that it was a very marketable policy and he was confident that he would be able to sell a substantial number of such policies. 14. When the loan and guarantee agreements of December 1988 were presented by the plaintiff to Mr Glaser for signing, he did not read them, nor did he obtain any advice in relation to them. To the extent that it has been contended that part of the defendant's grounds of defence rest on an obligation on the part of the plaintiff to ensure that the defendants were independently advised as to the contents of the documents proffered by the plaintiff, I consider that no triable issue arises in this regard. There would have to be a legal obligation imposed upon the plaintiff to inform the defendants that they should obtain independent legal advice and, in my view, the facts do not, even on an arguable basis, indicate that such a duty existed. 15. Mr Glaser said that when he signed the loan agreement and the guarantee he was not aware that he might one day be held personally liable for the moneys being advanced. That, as a matter of contract law, does not absolve him from the obligation to repay, but such a defence was not contended for by Mr Rochow. It was the defendants' case that they were not liable to repay because of the alleged misleading conduct on the part of the plaintiff giving rise to a liability under the provisions of section 52 of the Trade Practices Act and the relief that may thereby be obtained under section 87 of that Act. 16. As to the loan of $2.8 million, Mr Glaser said that the plaintiff failed to advise him and Mr Popowski to obtain independent legal advice. However, for the reasons referred to above, I do not consider that the affidavit material gives rise to an argument that there was a duty on the part of the plaintiff so to advise the defendants. 17. When the loan agreement and guarantee of March 1989 were signed by Mr Glaser he did not read the documents. He said that if he had known that he would be personally responsible for the repayment of the $2.8 million he would not have entered into the transaction. He says this in the context of the allegation that, of the $2.8 million, $2.6 million went to EFN. 18. As a matter of contract law, such an assertion has no relevance. However, in the second defendant's affidavit of the 9th September 1993, reference is made to an alleged representation by the plaintiff that EFN was in a sound financial position. That allegation by the 2nd defendant forms part of the defendants' case that the plaintiff engaged in deceptive or misleading conduct and as such it constitutes an arguable ground of defence. 19. In paragraphs 21 and 22 of his affidavit, the 1st defendant refers to the advance of $170,000. It is alleged that the purpose of the loan to the company was to allow the funds to be channelled to EFN. Although, on the evidence before me, there does not appear to be much substance in grounds of defence based on the fact that the 1st defendant did not read the documents and that he was not advised by the plaintiff to obtain legal advice, the allegation relating to the financial substance of EFN gives rise to an arguable defence based on the provisions of the Trade Practices Act. 20. Paragraphs 23 to 27 of Mr Glaser's affidavit relate to the circumstances under which the plaintiff realised one of the securities taken, namely the property at Norwood. In my view the facts deposed to there give rise to an arguable ground that the defendants, as guarantors, may call the plaintiff to account in respect of the manner in which the mortgagee sale was effected. In arriving at that conclusion I have relied upon the decision of the High Court in Commercial and General Acceptance Ltd. v Nixon and anor (1982) 152 CLR 491 and in particular the judgment of Aickin J. 21. At paragraph 28 of his affidavit Mr Glaser refers to the withdrawal, some 12 to 18 months after the commencement of his association with the plaintiff, of the A15 policy. He said that had he been aware of the possibility that the policy might have been withdrawn he might not have entered into the loan of $2.8 million because much of the calculations and estimations as to the sale of the plaintiff's products were based on the ability to sell the A15 policy. 22. I turn to the affidavit of Mr Popowski sworn on 9th September 1993. It is in similar terms to Mr Glaser's affidavit although, as I have observed previously, some of the admissible information relating to a loan of $2.8 million casts a greater light on that transaction than the evidence contained in Mr Glaser's affidavit. 23. It is apparent from Mr Popowski's affidavit that the loan of $2.8 million was principally to provide funds to EFN through the company West Tax SA Pty. Ltd. It is also apparent that it was envisaged that prior to the release of funds to EFN, securities were to be given by that company to West Tax, but it is alleged that the money was released by the plaintiff prior to the obtaining of such securities and EFN later refused to provide the security. 24. At paragraphs 25 and 26 of Mr Popowski's affidavit he sets out his contentions in relation to the basis of opposition of the plaintiff's application for summary judgment. 25. Having reviewed the admissible evidence it is apparent that the situation between the plaintiff and the defendants is factually and legally complex. Whilst it may be said that in relation to some of the grounds of defence contended for by the defendants, there does not appear to be any arguable basis for such grounds, there are matters relating to the loan of $2.8 million, the disbursement of the proceeds thereof by the plaintiff and the subsequent mortgagee sale of the Norwood property which lead to the conclusion that there are at least some grounds of substance that may be pursued by the defendants in order to oppose the plaintiff's claim. I think it is at least arguable that given the conversations that took place between the representatives of the plaintiff and the defendants prior to the first advance and also, in particular, prior to the advance of $2.8 million, the defendants may be able to avail themselves of the provisions of sections 52 and 87 of the Trade Practices Act. Although their defence in that regard is presently ill-defined, I think it has been put forward with a sufficient degree of clarity for me to conclude that there is at least an arguable basis of opposition legitimately to be pursued by the defendants. In addition I consider that the facts put forward by the defendants in relation to the circumstances of the mortgagee sale of the Norwood property also raise an arguable ground of opposition. Consequently I consider that the plaintiff's application for summary judgment ought to be refused. 26. I also consider that the defendants should not be restricted as to the width of the defence and counter-claim which they wish to pursue. Although I have not, on this application, been satisfied that the defendants have made out an arguable basis for all grounds of defence contended for by Mr Rochow, I consider that the affidavits of the defendants have raised matters which they ought to have the opportunity of litigating. I have formed that conclusion because the dealings between the parties were factually complex and I allow for the possibility that the defendants may be able to marshall additional admissible evidence by further investigation and 11 from the process of discovery between the parties. In those circumstances, where the defendants have made out some arguable grounds of defence, I consider it appropriate to permit the defendants to pursue further grounds which have not been established as arguable before me. 27. I will hear the parties as to costs and as to the time within which the defendants are to file and serve their defence and counter-claim.