Thompson Land Limited v Lend Lease Shopping Centre Development Pty Ltd
[2000] VSC 108
•30 March 2000
| SUPREME COURT OF VICTORIA | |
| COMMERCIAL & EQUITY DIVISION | Not Restricted |
No. 6596 of 1996
| THOMPSON LAND LIMITED (Receiver and Manager appointed) (in liquidation) and JOHN MARTIN WALSH (as liquidator of Thompson Land Limited (Receiver and Manager appointed) (in liquidation) | Plaintiffs |
| v | |
| LEND LEASE SHOPPING CENTRE DEVELOPMENT PTY LTD | Defendant |
| and | |
| AUSTRALIA AND NEW ZEALAND BANKING GROUP LTD | 3rd Party |
---
JUDGE: | McDonald J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 25, 28, 29 February; 1, 2, 3 and 6 March 2000 | |
DATE OF JUDGMENT: | 30 March 2000 | |
CASE MAY BE CITED AS: | Thompson Land Limited & Anor v Lend Lease Shopping Centre Development Pty Ltd & Anor | |
MEDIUM NEUTRAL CITATION: | [2000] VSC 108 | |
---
Companies - winding up – bank guarantee guaranteeing performance of companies obligations under contract – company account overdrawn – payments made by bank to creditor – bank cheques – whether payment void as dispositions of company's property – Companies Victoria Code 1981 - s.368(1).
---
APPEARANCES: | Counsel | Solicitors |
For the Plaintiffs | Mr F.G.A. Beaumont QC with | Abbott, Stillman & Wilson |
For the Defendant | Mr G. Nettle QC with | Freehill, Hollingdale & Page |
| For the 3rd Party | Mr N. Young QC with Dr R. Derham | Corrs, Chambers Westgarth |
HIS HONOUR:
The first plaintiff ("Thompson Land") is a company which was incorporated in Victoria. On 15 May 1990, an application was made to this court to wind up Thompson Land. On 6 September 1990, an order was made by this court that Thompson Land be wound up. It was further ordered that the second plaintiff, Walsh, be appointed liquidator of Thompson Land for the purposes of the winding up.
In these proceedings the plaintiffs allege that during the period from and including 8 August 1990 to 20 November 1990 the third party, Australia and New Zealand Banking Group Limited ("A.N.Z.") paid out of an account held by Thompson Land with it, four sums of money, by four bank cheques drawn by the A.N.Z. in favour of the defendant, formerly known as Lend Lease Retail Projects Pty Ltd ("Lend Lease") and thereby disposed of property of Thompson Land. The bank cheques drawn by A.N.Z. in favour of the defendant were drawn on the following dates for the following amounts –
8 August 1990 -
$1,011,567.07
12 September 1990 -
$173,540.31
10 October 1990 -
$173,225.75
29 November 1990 -
$2,441,666.88
$3,800,000.01
The plaintiffs allege that each payment to Lend Lease by bank cheque drawn by A.N.Z. in favour of Lend Lease was a disposition of property of Thompson Land by A.N.Z. to Lend Lease and was void against Lend Lease pursuant to s.368(1) of the Companies (Victoria) Code. That section provided –
"(1) Any disposition of property of the company, other than an exempt disposition, and any transfer of shares or alteration in the status of the members of the company made after the commencement of winding up by the court is, unless the court otherwise orders, void."
In the circumstances of this case the commencement of the winding up of Thompson Land occurred on 15 May 1990, when an application for the winding up of the company was filed with this court – s.365(2) Companies (Victoria) Code. The plaintiffs allege that in consequence of each of the four payments being void, as alleged, the defendant Lend Lease, is indebted to Thompson Land in the sum of $3,800,000.01. The plaintiffs claim payment of that sum. Lend Lease has denied liability to the plaintiffs. It has denied that the payments to Lend Lease by each of the four bank cheques drawn by A.N.Z. in favour of Lend Lease was a disposition of property of Thompson Land. The primary defence of Lend Lease to the plaintiffs' claim is that each payment made by A.N.Z. to it, by bank cheque drawn by A.N.Z. in favour of it and which was honoured by A.N.Z., was a payment by A.N.Z. not out of an account of Thompson Land with A.N.Z. but rather it was a payment by A.N.Z. as principal pursuant to its unconditional obligation under the terms of a contract of guarantee (the bank guarantee) provided to Lend Lease by A.N.Z. on 30 January 1990 and that each such payment was therefore not a disposition of property of Thompson Land.
Lend Lease by way of a second arm of defence to the plaintiffs' claim has further alleged that if the payments made by A.N.Z. to Lend Lease, as referred to, were made by A.N.Z. out of an account of Thompson Land with it, which is denied, such payments were charged by Thompson Land in favour of A.N.Z. pursuant to a mortgage debenture dated 13 May 1988 and given by Thompson Land in favour of A.N.Z. which charge had crystallised and become a fixed charge in favour of A.N.Z. before 8 August 1990. Lend Lease alleged that at all material times the amounts owed by Thompson Land to A.N.Z. and secured by the fixed charge, or alternatively to A.N.Z. and other creditors, exceeded the value of Thompson Land's assets and undertakings which were subject to such securities and that therefore Thompson Land had no beneficial interest in such funds such as would make the funds available for creditors in a winding up. Lend Lease alleged, that in consequence, the payments made by A.N.Z. to Lend Lease were not dispositions of the property of Thompson Land. The plaintiffs by their pleadings joined issue with each of the defences of Lend Lease to their claim. In part the plaintiffs alleged that in making the payments to Lend Lease, A.N.Z. waived its rights as chargee in relation to the property disposed of and that the payments were payments of moneys of Thompson Land which would otherwise have been available to the creditors of Thompson Land in its winding up.
In these proceedings Lend Lease joined A.N.Z. as a third party. In the third party proceedings, Lend Lease has alleged in substance, that if in breach of the terms of the bank guarantee, A.N.Z. did not pay the amounts referred to as principal pursuant to the bank guarantee and from its own funds but instead obtained the proceeds for each payment from Thompson Land or made such payments out of funds the property of Thompson Land, then under a number of heads of alleged claims, A.N.Z. was liable to it. Without dealing with all the issues raised by the pleadings as between Lend Lease and A.N.Z. in the third party proceedings, it is sufficient at this point to identify some of the matters raised by A.N.Z. in defence of the third party claim made against it by Lend Lease. By its defence to the amended third party statement of claim, A.N.Z. has alleged that the four payments made by it by bank cheques, were made in satisfaction of its obligations to Lend Lease under the terms of the bank guarantee, that the cheques were drawn on its own account and paid from its own funds. A.N.Z. has further pleaded in the third party proceedings that in consequence of the alleged facts and matters raised by the defendant in the second arm of its defence to the plaintiffs' claim, if A.N.Z. obtained the funds for each payment made by it to Lend Lease from Thompson Land or out of funds the property of Thompson Land in the circumstances existing, Thompson Land had no beneficial interest in such funds or property which was available in its winding up.
In the proceedings, the third party, A.N.Z., in reliance on Rule 11.09(2) of the Rules of Court, filed a defence to the plaintiffs' statement of claim against Lend Lease raising the matters and issues the subject of that which I have referred to as the second arm of the defence of Lend Lease which at the time of the filing of that defence had not been pleaded by Lend Lease by way of defence to the plaintiffs' claim. By that pleading, A.N.Z. disputed that Lend Lease was liable to the plaintiff. However, at trial, as I have referred to, the matters the subject of the defence of A.N.Z. to the plaintiffs' statement of claim were the subject of the defence of Lend Lease to the plaintiffs' claim against it. Each matter raised by the defence of A.N.Z. to the plaintiffs' statement of claim, was pleaded by Lend Lease in its then further amended defence to the plaintiffs' statement of claim.
The appropriate starting point when dealing with the facts in this case is the agreement that was entered into between Thompson Land and Lend Lease on 22 September 1989. By such agreement, Thompson Land agreed with Lend Lease to sell to it the land and improvements known as the Capital Centre at Dandenong for M$68. The agreement (the sale contract) provided for the payment of a deposit of M$6.8 upon signing and the balance be paid 30 days after the later of the date of practical completion of the Centre and the opening day of the centre. The sale contract provided that the "extended completion date" meant 20 November 1989 or such later date determined in accordance with the contract. Subject to special conditions it was the obligation of Thompson Land to cause the construction of the Centre to be at a stage of practical completion on or before 20 November 1989. Thompson Land was further obliged to cause the Centre to be constructed in accordance with the plans and specifications and a schedule of finishes. By clause 23.1 of the sale contract it was provided –
"23.1 Vendor to provide bank guarantee
As security for the due performance by the vendor of the obligations on its part contained in this contract, the vendor will provide or cause to be provided to the purchaser at or before the settlement date an unconditional bond ('the bank guarantee') issued by an Australian trading bank upon terms and conditions acceptable to the Purchaser in the sum of an amount being the aggregate of $4.9 million and the amount determined in accordance with special condition 24 or in such other lesser sum as may from time to time be agreed in writing pursuant to special condition 23.3."
Clause 23.2 further provided –
"Purchaser to make demand
Subject to the terms and conditions set out in the bank guarantee, the purchaser will not make any demand for payment under the bank guarantee unless and until the Vendor is in default hereunder and notice in writing of intention to make such demand shall have been given and delivered to the Vendor and the Vendor shall have failed to remedy the fault within a reasonable time thereafter (which in no event shall be less than seven days)."
Clause 10.21 of the sale contract further provided –
"Defects liability
Any defects or other faults which may appear and be notified in writing to the vendor by the purchaser within the period of 52 weeks after issue of the certificate of practical completion due to materials or workmanship being not in accordance with the plans and specifications or the schedule of finishes or this contract shall upon the direction in writing of the purchaser and within a reasonable time be amended and made good by the vendor at no cost to the purchaser and in default the purchaser may recover from the vendor directly or by demand under the bank guarantee costs of making good such defects or other faults."
Pursuant to clause 17.1 of the sale contract, the vendor Thompson Land, guaranteed to the purchaser, Lend Lease, a return in respect of the retail areas of the Centre in a sum equal to M$5.548 ($462,333 per month) for the first period of 12 months commencing on the day following the settlement date. It was further provided by clause 17.4 that in the event that the return for the Centre during any month of the period referred to was less than the guaranteed return for that month, then subject to special condition 17.3 (which is not relevant to this case), "the vendor shall upon demand pay to the purchaser in cash, free from all deductions, a sum equal to the difference between the guaranteed return and the return for that month".
On 30 January 1990, a contract of sale variation was entered into between Thompson Land and Lend Lease. In part, and by clause 14 thereof, it provided that the expression "$4.9 million" in special condition 23.1 be deleted and the expression "$3.8 million" be inserted in lieu thereof.
In compliance with its obligation under clause 23.1 of the sale contract, on 30 January 1990 Thompson Land made written application to A.N.Z. for it to provide a bank guarantee or security in favour of Lend Lease in the sum of M$3.8. By such written application made by Thompson Land to A.N.Z. it was provided in part –
"In consideration of the bank giving such a guarantee or security, I/we ask you to pay to the Favouree and to debit to my/our account without prior reference to me/us any sum of sums not exceeding the amount stated above which the Favouree may claim from you under the guarantee or security or may require on its termination by you. The bank will not be responsible in any way for the correctness of any amount or amounts claimed or required."
On 30 January 1990 A.N.Z. provided to Lend Lease, a bank guarantee in writing for the sum of M$3.8. In the document Lend Lease is referred to as "the principal" and Thompson Land is referred to as "the customer". By its terms A.N.Z. asked Lend Lease to accept the undertaking as security for Lend Lease of the due performance by Thompson Land of the obligations on its part contained in the sale contract of real estate in respect of the Centre together with the improvements constructed or to be constructed thereon. The bank guarantee further provided in part –
"In consideration of the Principal accepting this Undertaking, the Bank undertakes unconditionally to pay the Principal on written demand from time to time any sum or sums to an aggregate amount not exceeding three million eight hundred thousand dollars ($3,800,000).
The Bank will pay this amount or any parts of it to the Principal on demand without reference to the Customer and even if the Customer has given the bank notice not to pay the money and without regard to the performance or non‑performance of the Customer or Principal under the terms of the contract or agreement.
Any alterations to the terms of the contract or agreement or any extensions of time or any other forbearance by the Principal or Customer will not impair or discharge the bank's liability under the undertaking."
On 30 May 1988, Thompson Land executed a mortgage debenture in favour of A.N.Z. as security for financial accommodation provided and agreed to be provided by A.N.Z. to Thompson Land.
On 9 March 1990, A.N.Z. made a demand in writing on Thompson Land for payment of all moneys which Thompson Land was then indebted or liable to A.N.Z. as secured or intended to be secured by the mortgage debenture. That demand was not complied with.
On 27 April 1990, Thompson Land in a letter addressed to Reginald Harrison, the Manager, Commercial, of A.N.Z., requested that A.N.Z. act under its security and appoint a Receiver and Manager of Thompson Land. On the same day A.N.Z. appointed Christopher Daly as Receiver and Manager of Thompson Land pursuant to the mortgage debenture.
At the time that A.N.Z. granted the bank guarantee to Lend Lease as security for the performance of Thompson Land's obligations under the sale contract the overdraft limit granted by A.N.Z. to Thompson Land was M$5. That was reduced to M$1.2 in order to enable the M$3.8 guarantee to be issued within the limits applicable to the Thompson Land account with A.N.Z.
The account that Thompson Land held with the A.N.Z. was at its Ringwood branch and it was numbered 310145889.
I turn now to the evidence relating to each of the alleged four payments.
-
As to the payment made on 8 August 1990 in the sum of M$1,011,567.07
By a letter dated 12 July 1990 from Lend Lease to the Receiver and Manager, Lend Lease stated that in accordance with clause 17.4 of the contract, it made demand for payment of the sum of $1,011,567.07 being the difference between the guaranteed rent return and the return for the period 31 January 1990 to 30 June 1990. By the terms of the letter it also referred to an agreement reached the previous day with the Receiver and Manager that Thompson Land would notify A.N.Z. that Lend Lease would be claiming the amount referred to under the bank guarantee in satisfaction of Thompson Land's liability under the return guarantee provisions of the sale‑contract. By the letter, Lend Lease further requested the Receiver and Manager to notify A.N.Z. of the claim against the bank guarantee.
On 16 July 1990, in a letter from the Receiver and Manager to Harrison of A.N.Z., the Receiver Manager informed the A.N.Z. that Lend Lease had lodged a certificate claiming $1,011,567.07 for the period 31 January 1990 to 30 June 1990. The Receiver and Manager informed the A.N.Z. that he had reviewed and accepted the certificate as correct and that as such, "Lend Lease may draw down this amount on the bank guarantee".
On 6 August 1990, Lend Lease gave to Thompson Land and to the Receiver and Manager a written notice of intention to demand payment of the sum of $1,011,567.07 in terms that at the expiration of seven days from that date it intended to make a demand for payment of the said sum under the bank guarantee in accordance with clause 23.2 of the sale contract. On 6 August 1990, Harrison, then a commercial manager of A.N.Z., noted in his diary that a demand had been received from Lend Lease for $1,011,567.07 for a claim made with the Receiver Manager under the indemnity guarantee for M$3.8. The diary note further stated that the payment had been discussed with the Receiver and Manager who confirmed the payment. By the note of Harrison directions were given to the bank officer Reeves at the regional office for commercial banking of A.N.Z. at Box Hill. Reeves was a commercial accounts officer. He reported to Harrison. Those directions were to pay the amount to Lend Lease and debit the current account of Thompson Land. Reeves was further directed to increase the overdrawn account of Thompson Land and to reduce the guarantee limit by a commensurate amount. In his evidence Harrison said that Lend Lease had made a demand under the bank guarantee, he said that he was able to say that by reference to his diary note of 6 August 1990. Harrison gave evidence that the guarantee limit of Thompson Land was reduced and its account in overdraft was increased. Senior counsel for the plaintiffs made criticism of the witness Harrison as to his credibility as a witness. Harrison was at the time relevant to those events, a senior officer with A.N.Z. and remains a senior officer with that bank. He gave his evidence in a direct manner and in my view there exists no good ground to suggest that he was other than a honest and reliable witness and a witness whose evidence should be accepted. Harrison gave evidence which I accept, that at no time did he have any discussion with Daly to the effect that Thompson Land wished to purchase a bank cheque from A.N.Z.
On receiving instructions from Harrison, Reeves completed debit and credit vouchers relevant to the transaction. The debit voucher directed to A.N.Z. Ringwood branch with respect to the Thompson Land account and for the sum of $1,011,567.07 stated – "Drawing for payment to Lend Lease Corporation under bank guarantee … ". The credit voucher was directed to the A.N.Z. bank cheques account as identified by number. The credit voucher included an entry directing that the Thompson Land account be debited. As on 7 August 1990, the Thompson Land account with A.N.Z. was overdrawn in the sum of $7,515,394.43. The witness Reeves, whose evidence I accept, gave evidence that the bank cheques accounts with A.N.Z. was an internal account which came under the general ledger listing of accounts and that basically it was a reconciliation account whereby bank cheques were kept track of. He said that the bank cheque account was credited on the drawing by the bank of the bank cheque and debited at the time of the collection of the proceeds of the bank cheque.
The vouchers were processed overnight by the bank. On the bank statement issued to Thompson Land on 8 August 1990 there was debited against the account of Thompson Land the sum of $1,011,567.07 which caused the overdraft to be increased and the account to be in debit in the sum of $8,526,961.50. On 8 August 1990, Harrison on behalf of A.N.Z. wrote to Lend Lease a letter enclosing a bank cheque for $1,011,567.07, stating it was "payment under bank guarantee in accordance with clause 23.2 of the contract of sale".
· As to payment made 12 September 1990 in the sum of $173,540.31
On 3 August 1990, Lend Lease made written demand on the Receiver and Manager for payment of $173,540.31, "being the difference between the guaranteed return and the return" for the month of July 1990. This demand was made under clause 17.4 of the sale contract. It was accompanied by a certificate of Lend Lease identifying the amount claimed. On 27 August 1990, Lend Lease gave notice to Thompson Land that at the expiration of seven days it intended to make a demand for payment of that sum under the bank guarantee in accordance with clause 23.2 of the sale contract. On 6 September 1990, Lend Lease by letter to A.N.Z., enclosed its notice of demand for payment of the sum of $173,540.31 and copy of the notice sent to Thompson Land and Daly on 27 August 1990. On 12 September 1990, Reeves noted by diary note, that a request had been received from Lend Lease to make payment for $173,540.31 for "rental short falls under our bank guarantee for $3.8M issued 30 January 1990". On 12 September 1990, debit and credit vouchers were completed by A.N.Z. and a bank cheque in the sum of $173,540.31 was drawn against the A.N.Z. bank cheque account. The debit voucher stated that the drawing was under the bank guarantee for payment to Lend Lease. By letter dated 12 September 1990, A.N.Z. forwarded to Lend Lease a bank cheque in the amount of $173,540.31, stating it was "part payment under the aforesaid guarantee". The letter also set out that the outstanding liability of A.N.Z. under the bank guarantee as being $2,614,892.62. A bank statement issued on 1 October 1990 directed to Reeves showed that the amount of $173,540.31 had been debited to the account of Thompson Land on 17 September 1990 effective date being 12 September 1990. That account also showed that there had been further debit and credit entries made to the account and that as at 17 September 1990, it was overdrawn in the sum of $17,428,630.14. Reeves explained that the debit entry made on 17 September 1990, meant that the sum of $173,540.31 had been posted against the account on 17 September 1990 but it was noted to be effective as at 12 September 1990.
· As to the payment on 10 October 1990 in the sum of $173,225.74
On 6 September 1990, Lend Lease served a demand on Thompson Land for payment of $173,225.74 pursuant to clause 17 of the sale contract. A rent return certificate for August 1990 was enclosed. It was on that day as previously referred to that it was ordered by this court that Thompson Land be wound up and Walsh was appointed as the liquidator for the purpose of the winding up.
On 25 September 1990, Lend Lease forwarded a letter to the Liquidator enclosing a copy of the claim sent to the Receiver and Manager on 6 September 1990 for the rent return with respect to the month of August 1990. The letter further stated, "I wish to confirm your instructions that we should continue to send all correspondence to the Receiver and Manager directly with copies to be sent to yourselves." The letter was addressed to the firm of which Walsh was a member.
On 1 October 1990, Lend Lease sent a notice of intention to demand payment addressed to the Receiver and Manager Daly and to Walsh giving notice to Thompson Land that at the expiration of seven days it intended to make demand for payment of $173,225.74 under the bank guarantee in accordance with clause 23.2 of the sale contract.
On 5 October 1990, the Receiver and Manager wrote a letter to A.N.Z. advising that Lend Lease had lodged a return certificate claiming $173,225.74 for the month of August and stating, "I have reviewed and accepted the certificate as correct. As such Lend Lease may draw down this amount on the bank guarantee". On 10 October 1990, Reeves recorded in a diary note that A.N.Z. had received a request from Lend Lease to make payment of the sum of $173,225.74 for rental shortfalls under the bank guarantee. On that day, credit and debit vouchers were prepared by A.N.Z. Again the debit voucher noted that the payment was made under the guarantee to Lend Lease. On that day a bank cheque payable to Lend Lease was drawn by A.N.Z. against its account in the sum of $173,225.74. In a bank statement issued by A.N.Z. with respect to the Thompson Land account on 31 October 1990, it shows that on 11 October 1990 the account was debited in the amount of $173,225.74 with an effective date 10 October 1990. Taking such debit into account the bank account of Thompson Land with A.N.Z. was overdrawn in the sum of $17,685,402.82.
On 10 October 1990, A.N.Z. in a letter addressed to Lend Lease enclosed a bank cheque for $173,225.74 stated to be, "part payment under the aforementioned guarantee". That was identified as the subject guarantee. That letter also stated that the then outstanding balance under the bank guarantee was $2,441,666.88. The receipt of the bank cheque was acknowledged by Lend Lease by letter dated 10 October 1990.
· Payment 20 November 1990 for the sum of $2,441,666.88
By a letter dated 22 August 1990 from Lend Lease directed to the Receiver and Manager, Lend Lease stated that the cost of rectification and incomplete works with respect to the construction of the Centre amounted to $2,444,145.00. Lend Lease demanded payment of that sum. On 31 August 1990, Lend Lease wrote a letter to the Receiver and Manager stating that the cost of rectification of defects and the incomplete works at the Centre was $2,513,626.00. Lend Lease demanded payment of $2,444,145.00 as the cost of rectifying defects and completing incomplete works. It is to be noted that this sum was in excess of the balance then remaining available under the bank guarantee subsequent to the payment being made by A.N.Z. on 10 October 1990.
On 2 November 1990,the Receiver and Manager wrote to A.N.Z. advising that Lend Lease had made a claim for defective and incomplete works for M$2.5 with respect to the Centre and that Lend Lease had advised that it was their intention of claiming against the bank guarantee for those outstanding works. The letter informed A.N.Z. that in a report prepared by Pizzey Noble Pty Ltd, Consulting Engineers the claim had been reviewed and that in its view there was a case for a claim amounting to M$2.20. The Receiver and Manager further advised A.N.Z. that his solicitors had advised that the claim could be validly claimed against the bank guarantee by Lend Lease.
On 2 November 1990, a meeting was held between persons including the solicitors for Lend Lease and the solicitors for the Receiver and Manager. At that meeting it was confirmed that the details of the defects and incomplete works and the cost of rectification of such defects and completing such works at the Centre amounted to $2,513,626.00. That was agreed to by Thompson Land. Thompson Land also confirmed that Lend Lease had complied with its obligations contained in clause 23.2 of the sale contract and was entitled to make demand on the bank guarantee given by A.N.Z., for the amount of $2,441,666.88 in partial satisfaction of its claim. It was agreed at the meeting that Thompson Land would use its best endeavours, including notifying A.N.Z. of Lend Lease's entitlement to make the demand as referred to and to facilitate an immediate draw down by Lend Lease on the bank guarantee in the sum of $2,441,666.88.
On 5 November 1990, A.N.Z. wrote a letter to the Receiver and Manager which in part asked him to confirm that the full and final claim on the bank under the bank guarantee would be M$2.5 and that such amount would be claimed either as a continuing rental shortfall claim or as settlement of the claim for outstanding works.
At the meeting on 2 November 1990, agreement was reached that Thompson Land was entitled to receive from Lend Lease $150,000 which was held by it up to that point pursuant to a further special term in the sale contract.
On 20 November 1990, debit and credit vouchers were prepared by A.N.Z. with respect to the sum of $2,441,666.88. The debit voucher noted that the drawing was for payments of the bank guarantee to Lend Lease. On that day a bank cheque was drawn by A.N.Z. against its bank cheque account. The bank cheque was payable to Lend Lease. On that day a "settlement" meeting was attended by a solicitor for the Receiver and Manager, a solicitor for Lend Lease and a representative of A.N.Z.. The representative of A.N.Z. handed to the solicitor for Lend Lease the bank cheque for $2,441,666.88 and in return he received a bank cheque for $150,000 being the amount to be paid by Lend Lease to Thompson Land and the original bank guarantee dated 30 January 1990.
A bank statement of A.N.Z. relating to the Thompson Land account issued on 30 November 1990 stated that there was debited to that account on 21 November 1990, the effective date being 20 November 1990, the sum of $2,441,666.88. That debit had the effect of causing that account to be overdrawn in the sum of $20,130,019.76.
The A.N.Z. officer, Reeves gave evidence relating to this bank cheque. He said that in respect of the sum of $2,441,666.88 there was no credit of that amount to any account other than the bank cheque account. He said that that bank cheque was not paid out of any account that contained only the bank's money or the Receiver and Manager's money. To this evidence I shall later return.
In evidence Reeves was asked if any money was paid into the bank cheque account. He replied that he was not sure what was meant by any moneys paid into the account but said further that "credit vouchers are processed to the accounts and debit vouchers which is the actual bank cheque, then net off against that credit voucher". He further said that the procedure utilised in respect of the four bank cheques would not have been different if Thompson Land had asked A.N.Z. to purchase a bank cheque from it. In further explanation of that evidence he said that if Thompson Land had come to A.N.Z. and said that it wanted a bank cheque to pay a customer there would have been a debit made to its account, credits made to the A.N.Z. bank cheque account and a drawing debited to the A.N.Z. bank cheque account at the time of collection of the proceeds of the bank cheque. There was no evidence relevant to the submission that I shall hereafter refer to, that Thompson Land or any person on behalf of Thompson Land sought to purchase from A.N.Z. or purchased from it any one or other of the bank cheques, the subject of those proceedings.
Harrison gave evidence as to the practice of the A.N.Z. with respect to payments made under a bank guarantee. That practice was that the bank asked for a claim from the favouree of the bank guarantee and that if it was for a full payment under the guarantee the bank asked for the return of the document, that is the guarantee, but if it was a partial payment the bank would want a written claim under the guarantee so that the bank may have evidence to reduce the amount that remained outstanding under the guarantee. He further said that when a Receiver and Manager of a company was appointed the practice followed by the bank in relation to the current banking account of the company was that generally they would not allow any further operation on the account, that any commercial bill would be retired to overdraft at the next "roll over" and that any liabilities as they became due were retired to overdraft so that it all sat in the overdraft account. The witness further said that in such banking accounts if indemnity guarantees were called up the indemnity guarantee limit would be cancelled and the amount would be added to the overdraft limit. He said that that process of retiring debt to overdraft did not involve any consultation with the company itself when company was in receivership. Harrison was cross-examined on a bank accounting document, "record of credit facilities approved" with respect to Thompson Land and dated 1 June 1990. The document evidenced movement between the amounts listed as "present limits" and "limits approved". The witness said that when a payment was called up under a guarantee the bank treated it as a reduction in the guarantee liability and an increase in the overdraft. He said, "It's just a transfer from one liability to another".
As demonstrated from the statements of account issued by A.N.Z., to which I have referred, the account of Thompson Land with A.N.Z. was overdrawn throughout the entire period relevant to this case. On 7 August 1990, it was overdrawn in the sum of $7,515,394.43. At no time during the relevant period did the indebtedness of Thompson Land to A.N.Z. ever fall below that figure. Immediately before A.N.Z. drawing the last bank cheque in the sum of $2,441,666.88, the account of Thompson Land with A.N.Z. was in debt in the sum of $17,688,353.88.
In final submissions made to the court the primary submission made on behalf of the plaintiffs was that the true nature and character of each of the four payments made by A.N.Z. to Lend Lease by bank cheque was that on each occasion A.N.Z. debited the current account of Thompson Land with the amount equivalent to the bank cheque paid to Lend Lease, that in consequence A.N.Z. provided funds by way of further overdraft facilities to Thompson Land which enabled it to "purchase" each bank cheque from A.N.Z. thereby causing each bank cheque to be its property. It was accordingly submitted that the payment on each occasion by A.N.Z. to Lend Lease of the bank cheque constituted a disposition of the property of Thompson Land.
Against this primary submission it was submitted on behalf of Lend Lease that each bank cheque, which was drawn by A.N.Z. on its bank cheque account was a payment made by A.N.Z. pursuant to its unconditional obligation to Lend Lease as principal under the bank guarantee and that it was paid by A.N.Z. out of its funds. It was submitted that by A.N.Z. debiting the current account of Thompson Land on each occasion in an amount equivalent to the bank cheque drawn and by it causing the account to be further overdrawn on each occasion, there was not provided by A.N.Z. to Thompson Land funds from which the bank cheque was obtained by Thompson Land, but rather A.N.Z. made an accounting entry in such account by way of debit entry, causing it to be further overdrawn. It was submitted that by making such accounting entry debiting the account of Thompson Land that it should be seen that A.N.Z. did no more than make such entry recording its right to be indemnified by Thompson Land against the performance of its obligation under the bank guarantee. It was submitted further that pursuant to the agreement of A.N.Z. with Thompson Land as constituted by the acceptance of the application of Thompson Land to A.N.Z. for it to furnish a bank guarantee to Lend Lease that A.N.Z. was by the terms of that agreement entitled, without reference to Thompson Land to debit the account of Thompson Land with any amount drawn down under the bank guarantee. It was submitted that by A.N.Z. debiting the account of Thompson Land on each occasion it did no more than it was entitled to do, that the entries were without reference to Thompson Land and that it should be accepted that it was this that occurred and not that A.N.Z. extended further overdraft facilities to Thompson Land from which additional funds it was able to obtain from A.N.Z. the bank cheques payable to Lend Lease.
On behalf of the plaintiff it was further submitted that it should be concluded that on each occasion, the payments made by A.N.Z. by bank cheque were not and could not have been payments by A.N.Z. under the bank guarantee because for such to be the case there was a need for strict compliance by Lend Lease of the provisions to clause 23.2 of the sale contract and also there was the need for Lend Lease to give the required written notice to A.N.Z. under the terms of the bank guarantee. It was the general submission of senior counsel for the plaintiffs that on each occasion neither of those necessary steps had been taken by Lend Lease and accordingly each payment, could not be a payment under the bank guarantee. It must follow from that submission that it should be concluded that as Thompson Land's account was further debited by an amount equivalent to the bank cheques, the funds from which the bank cheques were provided were those of Thompson Land and by such use of those funds there was a disposition of its property to Lend Lease on each occasion which was void against Lend Lease.
In considering these primary submissions it is not necessary at this point to have regard to the evidence relevant to the further issue raised by Lend Lease which was that in the event of it being determined that the payments made by A.N.Z. by bank cheque to Thompson Land were from funds provided by further overdraft facilities provided by A.N.Z. to Thompson Land that, in the circumstances existing and in consequence of the debenture mortgage held by A.N.Z. over the assets and property of Thompson Land and in respect of which the interest of A.N.Z. had crystallised at least by 27 April 1990, Thompson Land had no beneficial interest in such property in consequence Thompson Land could not have had any beneficial interest in the bank cheques and the payment by the same to Lend Lease on each respective occasion was not a disposition of the property of Thompson Land. This issue will only arise in the event of it being determined that the funds utilised by A.N.Z. to enable it to draw the respective bank cheques were funds provided by it to Thompson Land by extending its overdraft facility on each occasion by an amount equivalent to the bank cheque.
An early statement as to the purpose of a statutory provision in similar terms to that being s.3681(1) of the Code, was that it prevented "the improper alienation and dissipation of the property of a company in extremis"; Lord Cairns L.J., Re Wilshire Iron Co [1868] 3 Ch App 443 at p.446-447.
For s.368(1) of the Code to have application rendering a disposition of property void, the property must be the "property of the company" and not the property of some other person or entity. For there to be a "disposition" of the property, "there must be some change that takes out of the company at least beneficial ownership in a corporate asset and passes it to someone else". Re Loteka Pty Ltd (in liq) [1990] 1 Qd R 322, McPherson J at p.325.
In Re Mal Bower's Macquarie Electrical Centre Pty Ltd [1974] 1 NSWLR 254 at p.258 Street CJ in Eq said, "The word 'disposition' connotes in my view both a disponor and disponee. The section operates to render the disposition void so far as it concerns the disponee".
It is the plaintiffs' case against Lend Lease, the defendant, that it was the disponee of property of Thompson Land in that it received each of the four bank cheques the property of Thompson Land and obtained the benefit of each of them.
In Re Gray's Inn Construction Co [1980] 1 WLR 711 the facts were that subsequent to the presentation of a petition for the winding up of the company moneys were paid in and out of the company's bank account which was overdrawn. The liquidator issued a summons for a declaration that the amounts credited and/or debited to the account by the bank during the relevant period constituted dispositions of the company's property which were void under s.227 of the Companies Act 1948 (UK). The liquidator further sought an order that the bank pay those moneys to the liquidator as constituting dispositions of the property of the company. In his judgment Buckley LJ at p.715-716 said –
"When a customer's account with his banker is overdrawn he is a debtor to his banker for the amount of the overdraft. When he pays a sum of money into the account, whether in cash or by payments in of a third party's cheque, he discharges his indebtedness to the bank pro tanto. There is clearly in those circumstances, in my judgment, a disposition by the company to the bank of the amount of the cash or of the cheque."
Later and at p.716 Buckley LJ, after stating that in the case before the court the company's account with the bank was overdrawn, said –
"Mr Heslop does not dispute that all payments out of the company's account to third parties, not being payments to agents of the company as such are dispositions of the company's property; … That all such payments out must be dispositions of the company's property is, I think, indisputable … ".
The question to be determined in this case on the evidence is whether the subject bank cheques were drawn by A.N.Z. against further overdraft facilities provided by it to Thompson Land and were dispositions of its property or whether the bank cheques were drawn against the funds of A.N.Z. in honouring its obligation to Lend Lease pursuant to the bank guarantee and the debit entries which were made to the account of Thompson Land were book keeping entries in such accounts by which there was recorded the further debt to A.N.Z. by way of indemnity against it meeting its obligation to Lend Lease under the bank guarantee which it was entitled to do without reference to Thompson Land.
In Re Loteka, after the company was wound up it continued to draw cheques on its bank account, which was in credit, in payment of various debts. The liquidator applied for declarations that the payments were void as against the liquidator under s.368(1) of the Companies (Queensland) Code and sought orders that the bank pay the liquidator the amount of the payments declared to be void. McPherson J held that as the account was in credit, the disponee of the company property was not the bank but the creditor in whose favour the cheque was drawn and delivered and that it was only against such a creditor as disponee and not against the bank that the disposition of property of the company by way of cheques was avoided by operation of s.368(1) of the Code. At p.328-329 McPherson J said –
"In paying the customer's cheque the bank debits the customer's account with the amount of the cheque drawn in favour of the stranger. In doing so, the bank, if the customer's account is overdrawn, lends its own money to the customer. That involves no disposition of the customer's property to the bank. Equally, if the account is sufficiently in credit to meet the cheque no disposition of the property of the customer takes place in favour of the bank. The amount standing to the credit of the customer's account is simply diminished thus reducing pro tanto the indebtedness of the bank to the customer. It is the payee of the cheque that receives the benefit of the proceeds of the cheque. All that happens between the customer and bank is an adjustment of entries in the statement recording the accounts between them."
It is to be noted that in that statement McPherson J was concerned with payment by the bank of the company's cheque drawn against its account.
In the present case, the plaintiffs contend that by A.N.Z. debiting the account of Thompson Land on each relevant occasion with an amount equivalent to the bank cheque drawn by it, that it should be concluded that the bank loaned to Thompson Land its money in that amount which was used by Thompson Land to "purchase" the bank cheque which became and was the property of Thompson Land and that by delivering the same to Lend Lease and later honouring it the bank thereby disposed of property of Thompson Land to Lend Lease which had in its origin the amount loaned by A.N.Z. to it.
The fact that A.N.Z. debited the account of Thompson Land on each occasion with an amount equivalent to the bank cheque drawn by it on its own account does not necessarily lead to the conclusion contended for by the plaintiffs. That is particularly so as the procedural steps followed by A.N.Z., that is, the completion of the debit and credit vouchers and the accounting entry of debiting Thompson Land's account and crediting the bank cheque account would have been followed whether Thompson Land had used an extended overdraft facility to "purchase" the bank cheque or A.N.Z. had drawn on its own account a bank cheque to meet its unconditional obligation to Lend Lease under the bank guarantee and debited the account of Thompson Land as it was entitled to do without reference to it under its agreement with Thompson Land. Rather, it is necessary to analyse the relationship existing in the circumstances, not only between Thompson Land and A.N.Z., but also A.N.Z. and Lend Lease in order to determine the true nature and character of the bank cheque and whether it was the property of Thompson Land as "purchased" by it from its moneys as provided by A.N.Z. and that by A.N.Z. delivering it to Lend Lease and honouring it, there was constituted a disposition by A.N.Z. of the property of Thompson Land to Lend Lease.
If the property in the bank cheques was the property of Thompson Land it is immaterial whether the disposition of that property is made by the company or by a third party or whether it is made directly or indirectly – Re J. Leslie Engineers Co Ltd (in liq) [1976] 2 All ER 85 at 89 per Oliver J. However, if the property the subject of the disposition was not the property of the debtor company it would follow that s.368 would not apply. Cf Ramsay v National Australia Bank Ltd [1989] VR 59 at pp.63-66. For s.368(1) of the Code to apply the property the subject of the disposition must be the property of "the company" and not that belonging to a third party – Toocooya Investments Pty Ltd (1978) 3 ACLR 252. It would follow that if there was property of Thompson Land in possession of another person or entity such as A.N.Z. who used it to pay a creditor of Thompson Land thereby discharging a debt of the company the disposition thereby of the property of Thompson Land would be void in the hands of the creditor, Lend Lease – Buchanan Enterprises Ltd (No. 2) (1982) 1 ACLC 553, Needham J at pp.555-6.
Although Lend Lease was a creditor of Thompson Land pursuant to the terms of the sale contract in respect of each of the amounts of the bank cheques and A.N.Z. was the banker of Thompson Land, that is only part of the relevant factual circumstances in this case. Lend Lease during the relevant times was the holder of the bank guarantee furnished to it by A.N.Z. It specifically provided that in consideration of Lend Lease accepting the undertaking as security for the due performance by Thompson Land of the obligations on its part under the sale contract A.N.Z. undertook "unconditionally to pay" Lend Lease on written demand any sum or sums not exceeding M$3.8, "without reference to [Thompson Land] and even if [Thompson Land] has given [A.N.Z.] notice not to pay the money and without regard to the performance or non-performance of [A.N.Z. or Lend Lease] under the terms of the contract or agreement."
Irrevocable letters of credit, purchase bonds and bank guarantees are of considerable significance in every day commercial transactions. In Bolivinter Oil S.A. v Chase Manhattan Bank M.A. [1984] 1 WLR 392 the Master of the Rolls, Sir John Donaldson said at p.393, when considering circumstances in which an ex parte injunction should be issued prohibiting a bank from paying under an irrevocable letter of credit or a purchase bond or guarantee –
"The unique value of such a letter, bond or guarantee is that the beneficiary can be completely satisfied that whatever disputes may thereafter arise between him and the bank's customer in relation to the performance or indeed existence of the underlying contract, the bank is personally undertaking to pay him provided the specific conditions are met. In requesting his bank to issue such a letter bond or guarantee the customer is seeking to take advantage of this unique characteristic. If, save in the most exceptional cases, he is to be allowed to derogate from the bank's personal and irrevocable undertaking, given be it again noted at his request, by obtaining an injunction restraining the bank from honouring that undertaking, he will undermine what is the bank's greatest asset, however large and rich it may be, namely its reputation for financial and contractual probity. Furthermore, if this happens at all frequently the value of all irrevocable letters of credit and performance bonds and guarantees will be undermined."
In Weaver and Craigie, the Law Relating to Banker and Customer in Australia – 2nd ed. the learned authors at p.13011 – para. 26.10 state –
"A bank guarantee or performance bond is a security for the payment of money backed by the financial strength of the issuing bank. These securities are normally used in contractual situations where one party to the contract requires a security for the due performance of the contract by the other. The intention is that the beneficiary should be assured of payment by the issuing bank, irrespective of the solvency of the other party, or of any dispute that may have arisen between the parties."
In Wood Hall Ltd v Pipeline Authority (1979) 141 CLR 443, Stephen J when dealing with the characteristics and nature of a bank guarantee at p.457 said –
"Once a document of this character ceases to be the 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 may 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."
In the present case, by Lend Lease taking the bank guarantee it was assured of payment by A.N.Z. without recourse to Thompson Land of moneys due to it from Thompson Land in consequence of the rent returns at the Centre being below that guaranteed by Thompson Land or of it incurring expenses as a result of there being defects in the building purchased or it not being constructed by Thompson Land as agreed. In taking the bank guarantee, Lend Lease was entitled to rely on the financial strength and integrity of the bank, A.N.Z. It needed to have no concern or regard to the capacity or ability of Thompson Land to honour its contractual obligations with respect to these matters. Lend Lease had no need to be concerned as to the solvency of Thompson Land for it was to A.N.Z. that it was entitled to look to and I am satisfied that it did look to on each of the four occasions for payment from its funds and resources of the moneys comprising the four bank cheques which were in aggregate an amount that A.N.Z. had guaranteed to pay to it pursuant to the bank guarantee.
There existed a contract between Thompson Land and A.N.Z. constituted by the acceptance by A.N.Z. of "indemnity and application for guarantee" dated 30 January 1990. The terms of the same I have previously referred to. As submitted on behalf of A.N.Z. in support of the primary submissions made on behalf of Lend Lease, that document constituted a request to A.N.Z. to execute a guarantee in favour of Lend Lease and an authority to A.N.Z. to debit the Thompson Land account with the amount paid under the guarantee. It was specifically provided by the terms of the "indemnity and application for guarantee" that in consideration of the bank giving the guarantee it asked the bank to pay Lend Lease and "to debit to my/our account without prior reference to me/us any sum or sums not exceeding the amount stated above which [Lend Lease] may claim from you under the guarantee or security". A.N.Z. was entitled on honouring its unqualified obligation to the holder of the bank guarantee, Lend Lease, and paying to it moneys under the same to debit the account of Thompson Land without reference to it. I am satisfied that this is what A.N.Z. did on each of the four occasions the subject of these proceedings. A.N.Z. was not asked by Thompson Land or the Receiver and Manager, Walsh or any other person to provide Thompson Land with further overdraft facilities to enable Thompson Land to meet the respective claims of Lend Lease against it under the sale contract. Thompson Land or the Receiver and Manager, Walsh or any other person on behalf of Thompson Land did not approach A.N.Z. to "purchase" from it bank cheques from funds provided to it by A.N.Z. lending to it further moneys thereby increasing its overdraft liability to A.N.Z. in amounts equivalent to the bank cheques. The relevant practise of A.N.Z. was that when there was a draw against a bank guarantee, entries were made in the books of account of A.N.Z. reducing the indemnity guarantee limit by the amount drawn and also by increasing the overdraft limit by an equivalent amount by a debit entry being made against the account of the customer, Thompson Land. It was this that A.N.Z. was entitled to do pursuant to its agreement with Thompson Land whereby it provided the bank guarantee to Lend Lease. Of significance is the fact that on A.N.Z. furnishing the last bank cheque to Lend Lease in the sum of $2,441,666.88, Lend Lease returned to A.N.Z. the written bank guarantee. This was required by A.N.Z.. This would not have occurred had Lend Lease in particular not appreciated that by receiving the last bank cheque it had exhausted its ability to call on the guarantee thereafter. Similarly, it is evidence of the fact that A.N.Z. regarded that by paying the four bank cheques to Lend Lease it had exhausted its obligation to it under the bank guarantee. These matters are inconsistent with factual circumstances being that A.N.Z. extended the overdraft facility of Thompson Land to provide it funds for it to then purchase the relevant bank cheques. The contention made on behalf of Thompson Land that it should be concluded that there had been a "purchase" and "sale" of the bank cheques to it does not make sense commercially given that at all times and at the specific request of Thompson Land, A.N.Z. was unconditionally liable as principal to Lend Lease pursuant to the terms of the bank guarantee.
However, as referred to, it was submitted on behalf of Thompson Land that as Lend Lease had not complied with the necessary contractual requirements both as provided by clause 23.2 of the sale contract and the bank guarantee, the payments made by the bank to Lend Lease could not have been paid by A.N.Z. pursuant to the bank guarantee from its own funds and therefore it ought to be concluded that the bank cheques were acquired from funds of Thompson Land, albeit from moneys lent to it by A.N.Z. and that the bank cheques were the property of Thompson Land which when provided to Lend Lease and honoured by A.N.Z., constituted a disposition of property of Thompson Land. In support of this submission reliance was sought to be had on Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 542 and Trihey Continental Corp Ltd v H.D.F.I. Ltd (1990) 21 NSWLR 689.
Before referring to these authorities it is necessary to further visit the facts relevant to the payments made by bank cheque on each of the four occasions by A.N.Z. to Lend Lease.
As to the first payment made on 8 August 1990 in the sum of $1,011,567.07, a written notice from Lend Lease to the Receiver and Manager on 12 July 1990 demanded payment of that sum. On 16 July 1990, the receiver manager informed Harrison of A.N.Z. that the claim had been made for that sum, informing A.N.Z. that Lend Lease "may draw down this amount on the bank guarantee". On 6 August 1990, Lend Lease made a formal written demand on Thompson Land for payment of the sum concerned stating that at the expiration of seven days it intended to make demand under the bank guarantee. As stated, the payment was made by A.N.Z. on 8 August 1990. On behalf of the plaintiffs it was contended that although the Receiver and Manager informed A.N.Z., as it did on 16 July 1990 and although A.N.Z. was aware of the demand, there was no written demand made by Lend Lease on the bank as required by the terms of the guarantee and therefore in the absence of such evidence it could not be concluded that the payment was made under the guarantee.
As to the second payment made on 12 September 1990 in the sum of $173,540.31. On 27 August 1990, Lend Lease gave to Thompson Land notice that at the expiration of seven days it intended to make a demand for payment for $173,540.31 against A.N.Z. On 6 September 1990 Lend Lease furnished to the bank copies of the notice of demand for payment of $173,540.31 and a copy of the notice of intention to demand payment which had on that day been sent to both Thompson Land and the Receiver and Manager. Although the actual notice of demand by Lend Lease to the bank was not forthcoming in evidence it was conceded by senior counsel for the plaintiffs that it was open to be inferred by the court that such written demand had been given. I see no reason why such conclusion should not be reached having regard to the letter of Lend Lease to A.N.Z. dated 6 September 1990. Accordingly, with respect to this payment it would appear that there are no grounds for the plaintiffs contending otherwise than the requirements of clause 23.2 of the sale contract and the condition for written demand as contained in the bank guarantee were not complied with. I am satisfied that each requirement was met.
As to the third payment of 10 October 1990 in the sum of $173,225.74, it is pertinent to recall that in the letter of Lend Lease of 25 September 1990, to the liquidator, Walsh, Lend Lease confirmed his instructions that it would continue to send all correspondence to the Receiver and Manager directly with copies to himself. On 1 October 1990, Lend Lease gave notice both addressed to the Receiver and Manager and to the second plaintiff, Walsh, in accordance with clause 23.2 with respect to the demand for the aforesaid amount. On 5 October 1990 the Receiver and Manager wrote to A.N.Z. informing it that Lend Lease may draw down the subject amount against the bank guarantee. As I understand the submission made on behalf of the plaintiffs relevant to this payment it is that although such was the case there was no demand in writing for payment of the subject amount made by Lend Lease on A.N.Z. as required by the guarantee.
As to the fourth payment made on 20 November 1990 for $2,441,666.88 it was submitted, on behalf of the plaintiffs, that although a purported agreement was reached between Lend Lease and the Receiver and Manager relevant to this payment there was no agreement reached binding the plaintiffs as the Receiver and Manager had no authority on behalf of Thompson Land to reach such agreement as by that time Walsh had been appointed as liquidator. However, more pertinent to the matter under consideration, as I understand the further submission made on behalf of the plaintiffs as to this matter, is that it was submitted that although written notices were given to the Receiver and Manager on 22 and 31 August 1990 claiming amounts for the cost of rectification and completing work there was never a formal notice given in accordance with clause 23.2 nor was a written demand made by Lend Lease against A.N.Z. as required by the bank guarantee.
In Ankar Pty Ltd v National Westminster Finance (Aust) Ltd the surety had maintained that breaches by the creditor of essential terms of a contract of guarantee discharged it from its obligations to the creditor under the contract of guarantee. At p.555 the majority of the court, comprising Mason ACJ, Wilson, Brennan and Dawson JJ said –
"Breach of an essential term or a breach going to the root of the contract will of course discharge the surety from future liability if the surety elects to rescind for breach. The expression 'essential term' perhaps needs some elaboration in the context of suretyship because it is said sometimes that a surety is discharged by non-fulfilment of a condition precedent and at other times that surety is discharged by the creditors breach of a condition. A condition precedent may be unfulfilled without any breach of contract, but when performance by the creditor of a contractual promise is a condition precedent to the liability of the surety under a contract of suretyship which otherwise involves no more than a guarantee of payment of debt owing to the creditor the creditor's promise is necessarily an essential term of the contract."
(Emphasis added.)
Again at p.561 their Honours said –
"If a surety is to be discharged for breach of a promissory term in a suretyship contract, the justification for the discharge must be that the creditor has failed to comply with a provision that as a matter of interpretation, requires strict performance as a condition precedent to the surety's obligation or at least require substantial performance of the promise such that the surety would not have entered into the contract if it had not been assured that there would not be a breach such as the breach which in fact occurred. If on its true interpretation the breach is not intended to so operate it is not easy to understand why the surety should be discharged by its breach."
In Tricontinental Corporation Ltd v H.D.F.I. Ltd the respondent entered into an agreement with the appellant whereby it agreed to underpin a risk assumed by the appellant in making a credit facility available to a third party. The appellant sought to recover against the respondent under the agreement which claim the respondent rejected claiming that the appellant had not satisfied preconditions to the entitlement to demand payment from it. The court was concerned with the preconditions to entitlement to make a demand were conditions precedent which if not complied with caused the obligation not to arise.
Each of those cases are not to the point in this case in my view. Insofar as it is contended on behalf of the plaintiffs that in respect of the first, third and fourth payments made by A.N.Z. that there was no written demand made against A.N.Z. by Lend Lease as required by the bank guarantee, at no time has A.N.Z. taken the position that in any of the four occasions that the absence of a written demand relieved it from its obligation to Lend Lease under the bank guarantee. Nor has A.N.Z. purported to elect to rescind the guarantee in consequence of such failure by Lend Lease to give written notice. Whether or not there was a breach by Lend Lease to give written notice to A.N.Z. honouring its obligation under the bank guarantee, by not giving formal written notice of its claim to A.N.Z., on the occasions referred to, at no time did A.N.Z. regard any failure of the giving of written notice as a basis for it electing not to be bound by the bank guarantee. The very opposite is the case. On each occasion A.N.Z. was aware of the demand on it by Lend Lease and A.N.Z. accepted that it was bound by the terms of the bank guarantee to make each of the four payments. It is not now competent for the plaintiffs to contend that by reason of the failure of Lend Lease to give a formal written notice of demand to A.N.Z. under the bank guarantee with respect to the first, third and fourth payments, such payments could not have been made by A.N.Z. under the bank guarantee.
By the terms of the bank guarantee, A.N.Z. undertook "unconditionally" to pay Lend Lease on written demand from time to time any sum or sums to the aggregate amount not exceeding M$3.8. It further specifically provided, as previously referred to, that – "The bank will pay this amount or any parts of it to [Lend Lease] on demand without reference to [Thompson Land] and even if [Thompson Land] has given the bank notice not to pay the money, and without regard to the performance or non‑performance of [Thompson Land] or [Lend Lease] under the terms of the contract or agreement." The contract referred to was the sale contract previously identified. To hold that the obligation of A.N.Z. to Lend Lease pursuant to the bank guarantee was conditional on Lend Lease complying with the terms of the sale contract and in particular the requirement of Lend Lease to give notice pursuant to clause 23.2 of the sale contract would be to imply a term into the bank guarantee which of itself would be inconsistent with it and fly in the face of its very terms. The obligation of A.N.Z. was to meet the demands of Lend Lease without reference to Thompson Land. The obligation of A.N.Z. to Lend Lease was to pay on demand even if Thompson Land had given notice to A.N.Z. not to pay the money. Further, the obligation of A.N.Z. to Lend Lease under the bank guarantee was specifically provided to be unconditional and without having regard to the performance or non‑performance of Lend Lease or Thompson Land under the sale contract.
In Woodhall Ltd v The Pipeline Authority (1979) 141 CLR 443, as appears from the head note, a condition in a contract for the construction of a pipeline required the contractor to provide a cash security or, alternatively, a bank guarantee as security for the contract's due and faithful performance of the work, "the performance guarantee". Another condition entitled the owner to retain 10% of the progress payments due to the contractor until the work had been performed and accepted in accordance with the contract. The owner, at the contractor's request, agreed to accept a bank guarantee in lieu of the moneys retained. By each of the guarantees the bank unconditionally undertook to pay the owner on demand any sum up to the limit specified in each guarantee. When the work was almost complete the owner demanded payment from the bank under the guarantees. It was held that the owner was entitled to demand and to be paid the amount of the performance guarantee whether or not there had been a want of due and faithful performance of the work. It was further held that the moneys so paid must be held by the owner as security for the contractor's due and faithful performance of the work. At p.451 Gibbs J said –
"By each of the bank guarantees, the Bank 'unconditionally' undertakes 'to pay on demand' the sum demanded up to the limit specified in the bank guarantee. To hold that the bank guarantees are conditional upon the making of a demand that conforms to the requirements of the contract between the authority and the contractor would of course be quite inconsistent with the express statement in the bank guarantees that the undertaking of the Bank is unconditional. To hold that the bank should not pay on receiving demand, but should be bound to enquire into the rights of the authority and the contractor under the contract to which the bank was not a party 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 bank guarantee in this way."
In my view such statement has direct application to the present case. It is not necessary in this case to determine whether or not in respect of each payment made by A.N.Z. to Lend Lease the latter was in breach of its agreement with Thompson Land and in particular its performance of clause 23.2 of the contract. In my view a determination of that matter cannot assist in determining the question as to whether the payments made by A.N.Z. to Lend Lease were payments from its own funds pursuant to its unconditional obligations under the bank guarantee or were payments which constituted a disposition by A.N.Z. of the property of Thompson Land.
Returning again to the fourth payment it was submitted also on behalf of the plaintiffs that such payment was made by A.N.Z. in consequence of an agreement or settlement reached with Lend Lease by the Receiver and Manager, Daly on behalf of Thompson Land. It was submitted that after the appointment of Walsh as liquidator on 6 September 1990, Daly had no power or authority to reach any compromise and again any payment on this occasion could not have been a payment pursuant to the obligation of A.N.Z. under the bank guarantee. It is to be noted that in cross‑examination Daly disavowed the suggestion that he compromised any claim of Lend Lease. He said it came to his attention that the amount being claimed by Lend Lease was in excess of the bank guarantee and he realised that the unsecured amount would exceed the bank guarantee. He said that in such circumstances he did not compromise anything.
In my view again it is not to the point whether Daly had the authority or power to compromise any claim on behalf of Thompson Land made against it by Lend Lease, when regard is had to the issue under consideration, that is, whether the payment by bank cheque of $2,441,666.88 was a disposition of the property of Thompson Land by A.N.Z. or was a payment by A.N.Z. to Lend Lease pursuant to its unconditional obligation under the bank guarantee. At the meeting held on 20 November 1990, as I have previously referred to, the bank cheque drawn by A.N.Z. was received by Lend Lease and it returned to A.N.Z. the bank guarantee. At least on that day through communications previously had with it, A.N.Z. was aware and concluded that Lend Lease claimed against it a sum or sums exceeding the balance of the obligation of A.N.Z. to Lend Lease under the bank guarantee. It was on that day that it delivered to Lend Lease the last of the four cheques.
Until the bank guarantee was returned to A.N.Z. on 20 November 1990, on which day A.N.Z. paid a bank cheque to Lend Lease exhausting its unconditional obligation to Lend Lease, A.N.Z. was bound by the terms of the bank guarantee provided by it to Lend Lease. On each occasion on being aware of a demand by Lend Lease against it under the guarantee, the bank responded and honoured its obligation to Lend Lease. One of the submissions made on behalf of the plaintiffs that the provision of the last bank cheque to Lend Lease constituted dispositions of property of Thompson Land was made in reliance on that part of the evidence of the bank officer Reeves; with reference to the last bank cheque provided by A.N.Z. to Lend Lease. To this evidence I have previously referred to in summary form. Reeves was asked, "Was this bank cheque paid out of any account that contained only the bank's money?" He replied, "No, it didn't". It is difficult to understand what the question meant and what was the meaning of the answer. What ever it is, in my view, it does not affect the result in this case. I am satisfied on the evidence in this case that each of the four bank cheques were not "purchased" by Thompson Land from A.N.Z. using funds, moneys provided to it by A.N.Z. by further extending the overdraft facility made available to Thompson Land by A.N.Z.
In Commercial Banking Co of Sydney v Mann [1960] AC 1 at p. 11 it was held that the issue of a bank cheque bound the drawer to pay the cheque from its own money. I am satisfied that on each occasion under consideration, a demand was made on A.N.Z. by Lend Lease under the bank guarantee and accepted by A.N.Z. as such. On each occasion A.N.Z. drew a bank cheque payable to Lend Lease which it accepted that it was obliged to honour and pay from its own moneys. It provided each cheque to Lend Lease. It was not in issue that A.N.Z. paid and honoured each cheque and that Lend Lease received the proceeds. Before drawing the cheques on each occasion A.N.Z. had not provided a financial facility or funds to Thompson Land to fund or support the cheques. Each cheque was honoured or paid out of the moneys of A.N.Z. Thompson Land had no moneys to support such cheque whether by a loan made to it by A.N.Z. by way of a further overdraft facility or otherwise. I am satisfied that each of the four accounting entries made by A.N.Z. in the account of Thompson Land with it which debited that account with an amount equal to the bank cheque was a debit entry which A.N.Z. was entitled to make under its agreement with Thompson Land and pursuant to which it provided Lend Lease with the bank guarantee. The four accounting entries debited the account with an amount that A.N.Z. was entitled to recover against Thompson Land, by way of indemnity against its payment made to Lend Lease pursuant to the guarantee. I am satisfied that this was the basis of such accounting entries being made in the account of Thompson Land on each occasion. Whether the respective accounting entries were made before or after the particular bank cheque was provided to Lend Lease or before or after the cheque was honoured by A.N.Z. does not alter the nature or character of those entries or the reason why it was made.
Each bank cheque was drawn by A.N.Z. in favour of Land Lease and paid by A.N.Z. from its own funds pursuant to the unconditional obligation that it had to Lend Lease under the terms of the bank guarantee.
I am satisfied that in respect of each of the four bank cheques, the subject of these proceeding, they were the property of A.N.Z. and remained such until delivered to Lend Lease. None of the four cheques were the property of Thompson Land. It had no interest in the property in any of the four bank cheques. I am satisfied that by A.N.Z. delivering each of such bank cheques to Lend Lease and paying the same, A.N.Z. did not dispose of any property of Thompson Land and no property of Thompson Land passed to Lend Lease. Accordingly, such payments are not void against Lend Lease pursuant to s.368(1) of Companies (Victoria) Code 1984. It follows that the plaintiffs' claim against Lend Lease must fail. Having reached this conclusion it is neither necessary or appropriate that I should consider the second arm of the defence of Lend Lease against the plaintiffs' claim against it.
In these circumstances there remains nothing in the third party proceeding by Lend Lease against A.N.Z. as those proceedings are dependent on Lend Lease being found liable to the plaintiff.
I propose to order
- That in the plaintiffs' proceedings against the defendant that there be judgment
for the defendant and that the proceedings be and are dismissed.
- That in the defendant's proceedings against the third party that there be judgment for the third party and that the third party proceedings be and are dismissed.
---
1
2
0