Wong v MCDONALD

[2015] FCCA 2120

FEDERAL CIRCUIT COURT OF AUSTRALIA

WONG v MCDONALD [2015] FCCA 2120

Catchwords:
BANKRUPTCY – Application to set aside the decision of the trustee in bankruptcy – whether the bankrupt was the guarantor of a loan agreement – doctrine of strictissimi juris – whether language in loan agreements is sufficiently operative to give rise to guarantor liability – guarantor liability remains in respect of principal sum owing – proof of debt admitted.

Legislation:

Bankruptcy Act 1966, ss.27, 102, 104(2)

Chan v Cresdon Pty Limited (1989) 168 CLR 242

Applicant: LYRINNA WONG

Respondent: GEOFFREY MCDONALD

File Number: SYG 1593 of 2015

Judgment of: Judge Street

Hearing date: 6 August 2015

Date of Last Submission: 6 August 2015

Delivered at: Sydney

Delivered on: 6 August 2015

REPRESENTATION

Counsel for the Applicant: Mr Bolster

Solicitor for the Applicant: Gavin Parsons And Associates

The Respondent appeared in person

Solicitor for the Respondent: A&J Montgomery Legal

ORDERS

1. Pursuant to s.104(2) of the Bankruptcy Act 1966, the decision of the Respondent as Trustee of the bankrupt estate of Moncef Neffati under s.102 of the Act to reject the claim of the applicant against that estate in the sum of $1,490,510 be reversed.

2. The Applicant’s costs be paid out of estate.

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT SYDNEY

SYG 1593 of 2015

LYRINNA WONG

Applicant

And

GEOFFREY MCDONALD

Respondent

REASONS FOR JUDGMENT

1. This is an application within the Court’s jurisdiction, under s.27 of the Bankruptcy Act 1966 (Cth), in relation to a proof of debt that was rejected by the trustee. The application, under s.104, is for review of that decision.

2. The Court has had the benefit of affidavit evidence from Ms Lyrinna Wong, whose evidence I accept, that explains the discrepancy between the proof of debt reference to two dates relating to the advance of $500,000 and $800,000 and different dates on the two actual deeds signed by the guarantor.  It is apparent that the bankrupt signed the two deeds of loan, one for $500,000 and one for $800,000 on 1 October 2010 and on 1 December 2010 both on behalf of his company as the principal debtor described as mortgagor and in his personal capacity as a guarantor.  The evidence is clear that Mr Nefatti’s company received the benefit of those two amounts.  I accept Ms Wong’s evidence as to those amounts being outstanding, subject to the quantified payments that have been acknowledged as received.

3. The respective deed of loan identified three parties, described as “the mortgagee”, “the mortgagor” and “the guarantor”.  All three parties executed the deed of loan in each instance with a witness. The deed created a principal liability for the mortgagor to pay back moneys advanced by the mortgagee by instalments with an interest obligation. There was in fact no mortgaged property but the primary obligation of the corporate mortgagor to repay the loan monies and interest to the mortgagee is clear.

4. The trustee did not have the benefit of the affidavit material or the oral evidence that has been given to this Court.  Clause 6 of each deed of loan was as follows:

   6 GUARANTOR'S GUARANTEE AND INDEMNITY

   6.1 The Guarantor agrees that the guarantee and indemnity is a continuing guarantee, and extends to the ultimate balance owing under this Deed, and that the Guarantor remains fully liable under the guarantee and indemnify despite the fact that the Mortgagee might have done something which may otherwise have the effect at law or in equity in varying or discharging the Guarantor's liability.

   6.2 In the case where the main and sole shareholder (Mortgagor and Guarantor) of Giallo Taxi Management Pty Ltd being Moncef Neffatti faces with a mishap (state of unconscious or death), the outstanding amount owing has to be paid in full and 20% of the company share, Giallo Taxi Management Pty Ltd, will go to the Mortgagee (Lyrinna Wong).

5. The trustee correctly identified that guarantees are instruments that are to be construed in accordance with the doctrine strictissimi juris, as identified in the High Court of Australia in Chan v Cresdon Pty Limited (1989) 168 CLR 242, at [256]. The trustee was of the view that there was ambiguity as to the existence of any obligation by the guarantor to pay and that the guarantee accordingly created no enforceable obligation.

6. The Court must first engage in the task of construction to determine the ordinary business meaning of the written contract before deciding whether or not there is an ambiguity to which that doctrine should be applied. The Court must hold a party to its bargain as a guarantor if there is on its proper construction no ambiguity. The nature of the contracts being in each case a deed, formally executed, and the surrounding circumstances as to the provision of funds to the bankrupt’s company are relevant as to the clear objective intention to create a binding obligation upon the guarantor. There is no work for the language in cl.6.1 to do if it does not pick up the principal obligation to pay back the principal debt and interest. The ordinary business meaning from the words of cl.6.1 is the creation of a real enforceable obligation of liability upon the guarantor in respect of “the ultimate balance owing under this Deed”. 

7. True it is that the provision does not expressly identify the principal debt and interest the subject matter of the guarantee obligation and greater clarity could have been provided in identifying the subject-matter of the guarantee in the operative language of the clause. Infelicitous language or lack of syntax must be reconciled with the ordinary business meaning of that actual language and syntax used in the particular deed or contract. The words “agrees”, “guarantee”, “indemnity”, “continuing guarantee”, “ultimate balance owing” and “fully liable” are all words of intended enforceable obligation to an ordinary business person and would be taken to refer to the earlier identified moneys and interest to be repaid by the mortgagor.  To construe the document as not giving rise to any obligation to repay the principal debt would be to defeat the clear objective intention to create an enforceable right against the guarantor. This would mean that the separate formal execution by the guarantor and language in cl.6 were entirely superfluous and would leave cl.6 in the respective deed of loan with no operative work whatsoever. That would be contrary to the ordinary business meaning of the language used in cl.6 which manifests an obligation to pay being imposed on the guarantor in respect of the monies advanced under the respective deed.

8. There is no ambiguity as to that obligation of guarantee as it can only refer to the obligation of the mortgagor to repay the principal debt acknowledged in cl.1.1 and the obligation to pay interest thereon in cl.2. Accordingly there is work for the doctrine of strictissimi juris to do in the construction of the respective deed as there is on the ordinary business meaning no ambiguity as to the content of the obligation of guarantee catching the liability of the guarantor to pay the principal debt in cl. 1.1 and the interest thereon under cl.2.

9. The plain ordinary meaning of the subject matter of that guarantee, when the deed is read as a whole, is the principal debt that is acknowledged in cl.1.1 and the obligation to pay interest under cl.2 then there would otherwise be no work for the provision to do.

10. The Court also had the benefit of evidence from the bankrupt in relation to alleged disputed conversations.  It is clear in this case that the obligations between the parties were reduced to a formal agreement. Counsel for the applicant did seek to advance an argument that the agreement should be construed as partly oral and partly in writing, in order to supplement any deficiency in cl.6.1. The oral communications are not ones that manifest an objection intention to give rise to an independent agreement. Given that the parties formally engaged in executing the instrument, it is that instrument in its proper construction that, in my opinion, contains the whole of the agreement as to the obligation as guarantor.

11. For reasons I have given, I am satisfied that the bankrupt was a guarantor under the respective instruments for the principal debt in cl.1.1 and the interest thereon under cl.2.  I am satisfied that the guarantor liability is one in respect of which the principal sum remains outstanding, except to the extent of the payments that have been identified or acknowledged by the applicant.  In that regard, the applicant acknowledged payments in the sum of $244,490 in the proof of debt.  The schedules to the affidavit by the applicant identify a lesser sum.  I am satisfied it is appropriate to take into account the amount identified in the proof of debt as being the sum received of $244,490 and, accordingly, the proof of debt should be admitted in the amount of $1,490,510.

I certify that the preceding eleven (11) paragraphs are a true copy of the reasons for judgment of Judge Street

Associate: 

Date:  11 August 2015