Vivlios v Westpac Banking Corporation
[2010] QCA 230
•27 August 2010
SUPREME COURT OF QUEENSLAND
CITATION: | Vivlios v Westpac Banking Corporation [2010] QCA 230 |
PARTIES: | JIMMY HARRY VIVLIOS |
FILE NO/S: | Appeal No 2251 of 2010 |
DIVISION: | Court of Appeal |
PROCEEDINGS: | General Civil Appeal |
ORIGINATING COURT: |
|
DELIVERED ON: | 27 August 2010 |
DELIVERED AT: | Brisbane |
HEARING DATE: | 18 August 2010 |
JUDGES: | Fraser and White JJA and Applegarth J |
ORDERS: | Application for leave to adduce fresh evidence refused;1. Appeal dismissed with costs.2. |
CATCHWORDS: | GUARANTEE AND INDEMNITY – THE CONTRACT OF GUARANTEE – CONSTRUCTION AND EFFECT – GENERALLY – where the first defendant entered into a business finance agreement with the respondent – where the appellant guaranteed for the first defendant’s performance under the business finance agreement – where the respondent varied the agreement – where the appellant argued variation might have altered the contract – where the primary judge held the express terms of the guarantee preserved the appellant’s liability despite any variation, concluded he had no real prospect of a successful defence and ordered summary judgment for the respondent – whether the primary judge erred in concluding that the appellant had no real prospect of defending the respondent’s claim on the guarantee APPEAL AND NEW TRIAL – APPEAL - PRACTICE AND PROCEDURE – QUEENSLAND – POWERS OF COURT – FURTHER EVIDENCE – where the appellant sought leave to adduce further evidence – where the affidavit did not comply with r 285 Uniform Civil Procedure Rules 1999 (Qld) and did not give rise to any arguable defence – whether the appellant established any pre-conditions for the reception of further evidence – whether special leave to adduce further evidence should be granted TRADE AND COMMERCE – TRADE PRACTICES ACT 1974 (CTH) AND RELATED LEGISLATION – CONSUMER PROTECTION – UNCONSCIONABLE CONDUCT – MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS – MISLEADING OR DECEPTIVE CONDUCT GENERALLY – GENERALLY – whether the bank’s omission to disclose a valuation to the appellant constituted unconscionable or misleading conduct for the purposes of s 51AA, s 51AB and s 52 of the Trade Practices Act 1974 (Cth) Trade Practices Act 1974 (Cth), s 51AA, s 51AB, s 52 Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; [1987] HCA 15, cited |
COUNSEL: | G Coveney for the appellant |
SOLICITORS: | HW Litigation for the appellant |
FRASER JA: Mr Vivlios has appealed against an order made in the trial division giving summary judgment in favour of Westpac Banking Corporation for $3,155,139.82.
Background
Mr Vivlios’ liability arose under his guarantee of the obligations of Coomera Lakeside Developments Pty Ltd under its business finance agreement with the bank dated 24 September 2007. That company was a joint venture vehicle for the development of land at Coomera by Mr Vivlios and others, including one Mr Nowak. Under the business finance agreement the bank provided the company with a business overdraft of $925,000.00 and a bank bill business loan of $6,010,000.00. The purpose of the overdraft was “to assist with the GST component” for the purchase of the land. The purpose of the bank bill business loan was to assist with the same purchase. Mr Vivlios’ liability under the guarantee was limited to $6,935,000.00.
Mr Vivlios expected that the overdraft would be repaid out of an anticipated GST refund to the company after it had purchased the Coomera land. That did not occur. According to Mr Vivlios, Mr Nowak instead caused the company to repay the overdraft with money advanced by a different lender. The bank sent a letter of variation dated 11 March 2008 which reduced the amount available on the overdraft to nil, referred to a deed of priority in respect of the $6,010,000.00 advanced under the bank bill business loan as constituting a variation of the security provided by the company to the bank, and set out a “mezzanine lending” clause. No such deed of priority was put in evidence by either party. The mezzanine lending clause set out in the variation letter was materially identical with a clause in the original business finance agreement. It provided that if the company wished to obtain mezzanine finance the bank would require that the terms of the finance be acceptable to it and would require the company, the mezzanine financier, and any security provider to enter into a priority agreement. The letter specified the terms of such a priority agreement. In summary, those terms would give priority to the bank and ensure that its rights were not adversely affected by the rights of the mezzanine financier.
The bank put in evidence a document purportedly signed by Mr Vivlios on 18 March 2008 recording his consent to the variation. Mr Vivlios swore that the document was not signed by him and that he was not aware of nor consented to the variation.
Mr Vivlios’ defence did not plead any viable defence to the bank’s claim against him on the guarantee but he resisted summary judgment on the ground that the arrangements mentioned in the letter of variation might have altered the contract between the bank and the company. Mr Vivlios relied upon the principle confirmed in Ankar Pty Ltd v National Westminster Finance (Aust) Ltd[1] that an alteration of the contract between lender and debtor will discharge the liability of the guarantor unless the lender shows that the alteration is insubstantial and not prejudicial to the guarantor.
[1](1987) 162 CLR 549 at 559.
Reasons of the primary judge
The primary judge assumed for the purposes of argument that there might have been some variation to the bank’s security to which Mr Vivlios might claim to be entitled by way of subrogation as surety because there might have been some additional security interest created over the assets which secured the company’s obligation to the bank. His Honour held, however, that the express terms of the guarantee preserved Mr Vivlios’ liability despite any such variation.
The guarantee which Mr Vivlios executed was dated 26 September 2007. It described the obligations of the company which Mr Vivlios guaranteed (the “Guaranteed Obligations”) in terms which included the company’s liabilities and obligations in respect of the business finance agreement or any amendment or replacement of those obligations. The guarantee incorporated the following terms which were set out in the bank’s “memorandum of common provisions”:
“E1. GUARANTEE
You guarantee to the Lender that the Customer will, on time:
§ pay to the Lender all the Guaranteed Money; and
§ perform the Guaranteed Obligations.
E2. PAY ON DEMAND
If the Customer does not pay an amount of the Guaranteed Money when it is due, the Lender may demand that you pay that amount. You must then immediately pay that amount to the Lender. The Lender can make any number of demands and demand can be made:
§ for all or part of the Guaranteed Money; and
§ even if the Lender does not take action to recover the Guaranteed Money from anyone.
This is an independent obligation.
. . .
E4. CONTINUING GUARANTEE
Your obligations under the Guarantee are continuing and irrevocable, except where the Lender agrees in writing. Subject to any agreed limit, if there is one, you are still liable for the Guaranteed Money and the Guaranteed Obligations now and in the future, even though the Lender receives payments from anyone or makes arrangements with anyone.
. . .
E7. VARIATION OF GUARANTEED OBLIGATIONS
The Guarantee applies automatically to all dealings between the Lender and the Customer in relation to the Guaranteed Money or the Guaranteed Obligations whether or not:
§ those dealings increase your liability (though any agreed limit set out in the Guarantee will still apply); or
§ the Lender notifies you or obtains your consent,
including a change in the Guaranteed Obligations, or new or replacement Guaranteed Obligations (see the definition of Guaranteed Obligations in A1 (“Using this Memorandum”) above).
E8. NATURE OF LIABILITY
Your liability under the Guarantee is unconditional and a primary obligation. It is not affected by anything which otherwise might release you from all or part of your obligations, including if:
. . .
§ the Lender makes any arrangement, transaction or compromise with anyone, including one which varies, takes away or limits its security or rights, or its freedom to exercise them;
. . .
§ the Guarantee or any other document or Security is temporarily or permanently invalid or unenforceable, is not taken by the Lender, is lost, is not signed by anyone or is not binding on anyone intended to give it (including any of you);
. . .
E11. OTHER SECURITY
Any other Security for all or part of the Guaranteed Money or Guaranteed Obligations is independent of the Guarantee. The Guarantee is independent of it.
Nothing affecting any Security will affect the Guarantor’s Liability under the Guarantee. The Lender can enforce the Guarantee and any Security in any order it wishes. It can choose not to enforce any Security at all.
Until the Guaranteed Money is paid in full, you can not claim the benefit of, and have no right to, the Security.”
The primary judge held that clause E8 in particular excluded any application of the principle that an alteration of the contract between lender and debtor will discharge the liability of the guarantor unless the lender shows that the alteration is insubstantial and not prejudicial to the guarantor. His Honour concluded that Mr Vivlios had no real prospect of successfully defending the bank’s claim and that there was no need for a trial.
Consideration of the appellant’s arguments
Counsel for Mr Vivlios argued that he might defeat the bank’s claim at a trial because it could not be known whether the deed of priority complied with the mezzanine lending clause in the business finance agreement. That argument fails for a number of reasons. Because the mezzanine lending clause in the varied arrangement materially replicated a clause in the original business finance agreement there is no ground for assuming that the bank entered into a deed of priority on different terms. In any case, even if the deed did depart from the terms of the business finance agreement in a way which impacted adversely upon the bank’s security, Mr Vivlios remained liable under his guarantee. The company’s obligations as varied remained within the definition of “the Guaranteed Obligations”. Mr Vivlios undertook a primary and independent obligation under his guarantee which, as clauses E7, E8, and E11 made clear, was unaffected by any variation in the security which the bank held or any change in the arrangements between the bank and the company. Those terms of the guarantee were effective to exclude the principle upon which Mr Vivlios sought to rely to escape liability.[2]
[2]See O’Day v Commercial Bank of Australia Limited (1933) 50 CLR 200; Beil v Mansell (No. 1) [2006] 2 Qd R 199 at 204 – 205; Schoenhoff v Commonwealth Bank of Australia [2004] NSWCA 161 at [10] - [13] and [19] - [23]; Johnson & Ors v Australian Guarantee Corporation Limited (1992) 59 SASR 382 at 386 - 387; Credit Lyonnais Australia Limited v Darling & Anor (1991) 5 ACSR 703 at 708-709 and 711-712.
The primary judge was correct in concluding that Mr Vivlios had no real prospect of successfully defending the bank’s claim on the guarantee and that there was no need for a trial.
Application for leave to adduce further evidence
Mr Vivlios filed his notice of appeal on 5 March 2010. On 17 August 2010, the day before the hearing of the appeal, he filed an application for leave to adduce further evidence in the appeal in the form of his affidavit sworn on the same day. Counsel for Mr Vivlios acknowledged that special leave to adduce the further evidence was required under the Uniform Civil Procedure Rules 1999 (Qld), rr 766(1)(c) and (2). The respondent opposed the application.
Mr Vivlios deposed that he had instructed his former solicitors that:
(a) The prompt repayment of the overdraft out of the GST refund which was anticipated shortly after the company purchased the Coomera land was an essential pre-requisite for Mr Vivlios because delay in that repayment could delay the securing of finance for the construction phase of the company’s development.
(b) In about late November or December 2007 Mr Steven Roshey of B2B Capital Pty Ltd and Mr Nowak told Mr Vivlios that the company had used the GST refund to repay the overdraft.
(c) Mr Vivlios “understood” that B2B Capital Pty Ltd was “associated” with Mr Nowak and the bank and Mr Nowak had informed Mr Vivlios that B2B Capital was the bank’s agent: “Further investigations need to be undertaken as to the nature of any agency relationship” between B2B Capital and the bank.
(d) In fact, in late 2007 Mr Nowak misappropriated the GST refund without the knowledge of his co-venturers.
(e) Mr Nowak, the company, and Mr Edwards for the bank had agreed to extend the term for repayment of the overdraft “to enable time for Nowak to repay the misappropriated funds from another source.” The bank did not then give Mr Vivlios notice of that extension.
(f) The overdraft was repaid by Mr Nowak after he had secured mezzanine funding, again without Mr Vivlios’ knowledge or consent.
(g) The existence of the mezzanine funding and associated mortgage in about mid-2008 caused the failure of the development because it adversely affected the loan to valuation ratio so that construction funding could not be obtained.
(h) In about June or July 2008 the bank informed Mr Vivlios of the “facts giving rise to the concerns” he identified in his affidavit after he had asked a representative of the bank why construction funding was not forthcoming.
(i) Had the bank earlier notified Mr Vivlios of the extension of the terms of the overdraft that would have alerted him to Mr Nowak’s fraud and Mr Vivlios then could have extricated Mr Nowak from the development, recovered the misappropriated funds, arranged for the repayment of the overdraft from another source so as to avoid the additional mortgage over the land which led to the loss of the development, and otherwise protected his position.
(j) The magnitude of the company’s borrowings together with the balance amount of the purchase price ($3,240,000.00) made this a very significant investment for Mr Vivlios so that he had been “extremely wary” of entering into the joint venture.
(k) The bank “was (by its agents Campbell Edwards and/or Steven Roshey and/or another agent whose name I cannot presently recall) at all material times, aware” that the purpose of the borrowings was to assist with the purchase of the land and of the other matters identified in his affidavit.
UCPR r 295 permits an affidavit in a summary judgment application to contain statements of information and belief if the deponent states the sources of the information and the reasons for the belief. Mr Vivlios did not identify any such source or reason to justify his assertion or the assertion he attributed to Mr Nowak that B2B Capital Pty Ltd acted as the bank’s agent in representing to Mr Vivlios that the company had repaid its overdraft from the GST refund. Mr Vivlios did not articulate any basis for his assertion that this topic called for further investigation. His ambiguous assertion that the bank informed him of “the facts giving rise to the concerns” was insufficient to establish that the bank admitted that it knew of the alleged misappropriation at any time before the bank allegedly informed Mr Vivlios of the facts which sparked his concern. Mr Vivlios also did not identify any source of information or reason for his conclusions that the bank agreed to extend the overdraft “to enable time for Nowak to repay the misappropriated funds from another source” and that the bank was “aware” of the matters he alleged. All of these assertions and conclusions were expressed in the most unconvincing terms. They were also inadmissible, as counsel for the bank submitted. There is then the further difficulty that Mr Vivlios did not even depose that he held any belief about any of those matters. He merely stated that he had told his former solicitor of them. In short, his affidavit does not provide any evidentiary basis for a claim that the bank participated in or knew of the misrepresentations and concealments alleged against Mr Nowak and B2B Capital Pty Ltd.
What is left is the bare allegation that the bank did not promptly inform Mr Vivlios of the company’s failure to repay the overdraft, the bank’s agreement to extend it, or the arrangements for the mezzanine funding. The terms of the guarantee did not entitle Mr Vivlios to any such information. Indeed clause E12 provided that “the Lender is not required to do anything in relation to the Customer’s financial and business condition and affairs or its transactions with the Lender, or to tell you anything concerning them”, subject to some exceptions which were not submitted to be relevant. The terms of the guarantee also unequivocally denied to Mr Vivlios any relevant interest as a surety in the bank’s security at the material time. For the reasons mentioned earlier these allegations could not give rise to any arguable defence.
Mr Vivlios deposed that at the summary judgment hearing on 5 February 2010 he had instructed his former solicitors that he had “serious concerns” about the sale of the Coomera land by the receivers appointed by the bank, which resulted in a recovery of only $3,422,222.44. That yielded a return of about 30 percent of the purchase price paid by the company in 2007 of $9,250,000.00, even though by the time of the receiver’s sale a development approval was in place for a mixture of 188 units and townhouse sites. Mr Vivlios thought that the receiver’s sale “requires further investigation”. This falls short of raising an arguable claim that the receiver was in some way in default in realising the security. In any event the guarantee, particularly in clause E11, makes it clear that any such default could not constitute a defence to the bank’s claim against Mr Vivlios.
Mr Vivlios deposed that after the hearing of the summary judgment application he obtained a copy of a valuation of the land dated 3 September 2007 which states that it was prepared for the bank. The valuer expressed opinions that the “as is” site value of the “parent site” (which I will assume included the relevant land) with the benefit of an existing development approval and exclusive of GST was $8,000,000.00. (The valuer also gave two “as if complete” valuations on different bases in the order of $66,000,000.00 and $73,000,000.00.) The business finance agreement provided that the “specific conditions” which applied to the company’s facilities included that, “the following Conditions Precedents must also be satisfied prior to the first drawing of the above Facility: The Lender is to be provided satisfactory valuation from an acceptable valuer to The Lender over the property known as 48 & 60 Esplanade, Coomera, Gold Coast, QLD. Valuation to be assigned to Westpac Banking Corporation for mortgage security purpose and confirm minimum “as is” valuation of $9,250,000.00 excluding GST.”
Mr Vivlios deposed that he took that to mean that the bank would not provide either of the finance facilities unless the land “held a minimum “as is” valuation” of $9,250,000.00 excluding GST. He deposed that he was only willing to provide a guarantee for that reason and the bank did not disclose the valuation to him.
Counsel for Mr Vivlios submitted that this evidence gave rise to an arguable defence that the bank’s omission to disclose the valuation to Mr Vivlios constituted unconscionable or misleading conduct for the purposes of the Trade Practices Act 1974 (Cth), ss 51AA, 51AB and 52. This was submitted to be the strongest argument for Mr Vivlios. There are, however, fundamental difficulties with it.
There is no evidence that the company did not supply to the bank a valuation which met the terms of the condition precedent before the first drawdown under the facility. Mr Vivlios’ affidavit wears the appearance of having been carefully drawn to confine his evidence in that respect to statements that the bank did not disclose to him any information regarding the 3 September 2007 valuation, that he provided his guarantee only because he was satisfied that the money would not be advanced if the property was “potentially” worth less than the contracted price of $9,250,000.00, and that he would not have provided a guarantee had he been aware that the land “may” be worth less. He did not refer at all to the question whether the company had supplied to the bank a valuation which satisfied the condition precedent.
Further, the condition precedent is not reasonably capable of bearing the meaning which Mr Vivlios deposed that he attributed to it. The provision of a specified valuation was expressed to be a condition precedent to the company’s entitlement to draw funds under the facility. It was not in form or substance a representation to any guarantor that the bank would not advance money otherwise than in accordance with the terms of the condition precedent. That the condition precedent could not bear that character is made plain beyond argument by the express terms of the guarantee set out earlier. The guarantee could hardly have made it clearer that the guarantor’s liability survived alterations in the arrangements between the bank and the company, which might include a waiver of this condition precedent. Mr Vivlios signed acknowledgments that he had read the guarantee carefully, made his own decision to sign it, obtained advice from his own lawyer and financial adviser, understood that it was his own risk, he was not looking to the Lender to advise him whether or not he should be signing, he did not expect the Lender to protect his interests, and it was for him to make sure that his interests were protected. Mr Vivlios did not attempt to explain in his affidavit how those acknowledgments and the terms of the guarantee could be reconciled with his alleged interpretation of the condition precedent.
Counsel for Mr Vivlios attempted that formidable task. He argued that the condition precedent took precedence over the express terms of the guarantee under a provision in clause A1 of the bank’s memorandum of common provisions to the effect that where the memorandum conflicted with a “document” (which included the business finance agreement and the guarantee) the “document” would take precedence, other than in circumstances which are not presently relevant. That provision is irrelevant because there was no such conflict. The condition precedent concerned the circumstances in which the bank was not obliged to advance money to the company. It had nothing to say about the circumstances in which guarantors were obliged to pay after money had been advanced.
Mr Vivlios’ evidence that he relied upon the bank to insist upon the condition precedent as he interpreted it also strains credulity. According to an earlier affidavit sworn by Mr Vivlios he was a director of a building company and the owner of real estate agency, he knew that Mr Nowak had insufficient capital or security to pay the purchase price, and he approached his other co-venturers to become involved in the development project. He obviously had a critical interest in the value of the land. There is no suggestion that he lacked relevant business ability or professional advice or that he was otherwise incapable of looking after his own interests. As counsel for Mr Vivlios submitted, contractual provisions and acknowledgments cannot as a matter of law exclude the operation of the Trade Practices Act (Cth); but where Mr Vivlios did not attempt to explain why the express terms of the guarantee and his contemporaneous acknowledgments should not be taken at face value it is not easy to accept his bare assertion that he relied upon the bank to decline to advance the money sought by the company for the benefit of the venture in which he participated.
There is no evidence that the bank appreciated or should have appreciated that Mr Vivlios had not informed himself about the company’s alleged failure to fulfil the condition precedent. There is no evidence that the bank knew or should have known that Mr Vivlios relied upon it to disclose the valuation to him. There is simply nothing in the evidence which renders it seriously arguable that the bank acted unconscionably or misled Mr Vivlios.
Mr Vivlios also deposed that he had “concerns” that the bank “may have entered into some form of commercial compromise with Nowak resulting in the avoidance or reduction of his liability under the primary claim.” This also does not give rise to any arguable defence. Under the guarantee any such dealings were irrelevant to the existence and extent of Mr Vivlios’ primary and independent obligation under his own guarantee.
In addition to the lack of merit in the proposed defences Mr Vivlios’ explanation for his delay in advancing them is unconvincing. The explanation in his current affidavit is that he had thought that his former solicitors had understood his instructions and raised the necessary defences but that upon engaging new solicitors after 5 February 2010 he discovered that this was not so. It is not easy to reconcile this explanation with his earlier affidavit, sworn on 4 February 2010, which was relied upon at the hearing of the summary judgment application. By then Mr Vivlios had apparently terminated the retainer of the firm who had filed his defence. His affidavit was prepared by a different firm, which has since been replaced by his current solicitors. Mr Vivlios deposed on 4 February 2010 that had he been shown the defence before it was filed by his former solicitors he would have instructed those solicitors to insert the basis of his defence outlined in that affidavit. He deposed that should he be given leave to defend his new solicitors would be instructed to file and serve an amended defence and counterclaim “in accordance with the terms of this my Affidavit”. That affidavit did not include critical allegations which appeared in his affidavit in this appeal. Mr Vivlios did not explain why he did not include those matters in his affidavit of 4 February 2010. His counsel did not respond to the submissions for the bank which identified these problems.
Counsel for Mr Vivlios argued that the proposed defence based upon the 3 September 2007 valuation emerged only after the hearing of the summary judgment application. As to that, Mr Vivlios deposed only that after the hearing, “my ongoing investigations into the matter” procured a copy of that valuation in or about March 2010. He gave no information about those investigations and he did not say that he could not have obtained a copy of the valuation before the hearing.
Accordingly, Mr Vivlios failed to establish any of the usual pre-conditions for the reception of further evidence in an appeal against a final judgment, namely that the evidence could not have been obtained before the judgment was given by the exercise of reasonable diligence, that the evidence is apparently credible, and that it probably would have had an important influence upon the result.[3]
[3]See Brisbane City Council v Mainsel Investments Pty Ltd [1989] 2 Qd R 204 at 215 and Clarke v Japan Machines (Australia) Pty Ltd [1984] 1 Qd R 404 at 408.
Proposed orders
I would refuse the application for leave to adduce fresh evidence in the appeal and dismiss the appeal with costs.
WHITE JA: I have read the reasons for judgment of Fraser JA and agree with the orders proposed by his Honour for those reasons.
APPLEGARTH J: I have had the advantage of reading the reasons of Fraser JA. I agree with those reasons and the proposed orders.
Key Legal Topics
Areas of Law
-
Commercial Law
-
Contract Law
Legal Concepts
-
Contract Formation
-
Breach of Contract
-
Implied Terms
-
Summary Judgment
-
Appeal
4
4
2