Supreme Court New South Wales Medium Neutral Citation: Taylor Square TT Pty Ltd v Kinselas Pty Ltd (No 2) [2024] NSWSC 987 Hearing dates: 15 July 2024 Date of orders: 9 August 2024 Decision date: 09 August 2024 Jurisdiction: Equity - Expedition List Before: Rees J Decision: Orders for specific performance against guarantor. Catchwords: GUARANTEES – principles of construction at [20]-[30] – contra proferentem rule not relevant where no suggested ambiguity – contract for sale of land and businesses in Darlinghurst for $61 million – purchasers are special purchase vehicles with $20 issued share capital – "prompt performance" of "all" purchasers' obligations guaranteed by director and shareholder of special purchase vehicles – purchasers failed to complete or comply with an order for specific performance – whether guarantor undertook to perform principal's obligation if the principal did not. SPECIFIC PERFORMANCE – whether orders for specific performance should be made against guarantor – Ryan v UPG 322 Pty Ltd [2023] NSWSC 1293 considered – quia timet relief available. WORDS AND PHRASES – "obligation to pay money" at [39]. Cases Cited: Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28 Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336 Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 Canty v Paperlinx Australia Pty Ltd [2014] NSWCA 309 Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250 Foran v Wight (1989) 168 CLR 385; 88 ALR 413 Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 Friend v Brooker (2009) 239 CLR 129 Jowitt v Callaghan (1938) 38 SR (NSW) 512 Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd [2023] HCA 6 Lavin v Toppi (2015) 254 CLR 459 Lee v ATL Australia Pty Ltd [2023] NSWCA 327 Mahoney v Lindsay (1980) 33 ALR 601 Moschi v Lep Air Services Ltd [1973] AC 331 Paolucci v Makedyn Pty Ltd (2021) 20 BPR 41,749 Rava v Logan Wines Pty Ltd [2007] NSWCA 62 Ryan v UPG 322 Pty Ltd [2023] NSWSC 1293 Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 Taylor Square TT Pty Ltd v Kinselas Pty Ltd [2024] NSWSC 799 Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 Texts Cited: JW Carter, Contract Law in Australia (LexisNexis Butterworths, 8th Edition, 2023) JW Carter and JC Phillips, "The Liability of Debtors and Guarantors under Contracts Discharged for Breach" (1992) 22 Western Australian Law Review 338 JW Carter, Carter's Breach of Contract (2nd ed, 2018, LexisNexis) M P Ellinghaus, "Essentials of the Modern Law of Guarantees" (1989) 2(2) Corporate & Business Law Journal 144 Mick Woodley (ed), Osborn's Concise Legal Dictionary (12th ed, 2013, Sweet & Maxwell) Category: Principal judgment Parties: Taylor Square TT Pty Ltd (First Plaintiff) Taylor Square Fund Pty Ltd (Second Plaintiff) Kinselas Pty Ltd (First Defendant) Kinselas Management Pty Ltd (Second Defendant) The Courthouse (NSW) Pty Ltd (Third Defendant) The Courthouse Management Pty Ltd (Fourth Defendant) Mark Toma (Fifth Defendant) Representation: Counsel: R Scruby SC / T Boyle (Plaintiffs) M Pesman SC / DA Allen (Defendants) Solicitors: Arnold Bloch Leibler (Plaintiffs) Kekatos Lawyer (Defendants) File Number(s): 2024/189586 JUDGMENT 1. HER HONOUR: On 18 June 2024, I ordered purchasers to specifically perform their obligations under four interdependent contracts for the sale of land and businesses, being to purchase the Kinselas Hotel and the Courthouse Hotel in Darlinghurst for $61 million. The purchasers were directed to pay the balance of the purchase price to the vendors, in return for the vendors conveying title, through online property exchange platform, PEXA, at 2pm on 1 July 2024. 2. On 28 June 2024, I declined to make an order for specific performance against the purchasers' guarantor, Mark Toma, to perform the contracts at the same time as the purchasers, being then three days hence: Taylor Square TT Pty Ltd v Kinselas Pty Ltd [2024] NSWSC 799. I stood the proceedings over until after the date for specific performance for further argument, if need be, as to whether the vendors were then entitled to orders for specific performance against the guarantor. I did so having formed the preliminary view that the terms of the guarantee were such that Mr Toma was not contractually obliged to provide funds to enable the contracts to be completed but, rather, was liable to the vendors, either in debt or for damages, for the consequences of the purchasers' non-performance of their contractual obligations: Taylor Square at [56]. I was concerned, however, that the issue was inadequately canvassed at the hearing "given the multiplication of issues sought to be raised by the purchasers the day before the hearing began, and the rapid contraction of those issues an hour before the hearing commenced"; fairness dictated that the vendors have an appropriate opportunity to seek to persuade the Court otherwise: Taylor Square at [68]. 3. The purchasers did not specifically perform their obligations on 1 July 2024 or at all. The vendors now press for orders for specific performance against Mr Toma. The vendors and the guarantor have made further written and oral submissions, with which I have been greatly assisted. Mr Toma's position remained that specific performance was not available given the terms of the guarantee but did not suggest that, if his construction of the guarantee clause was not accepted, then any discretionary factors pointed against an order for specific performance being made against him. Facts 1. In reprise, the first plaintiff, Taylor Square TT Pty Ltd, owns the land on which the Kinselas Hotel and the Courthouse Hotel are located. The second plaintiff, Taylor Square Fund Pty Ltd, owns the businesses and the assets used in the businesses. 2. On 28 August 2023, the purchasers were incorporated, being Kinselas Pty Ltd, Kinselas Management Pty Ltd, The Courthouse (NSW) Pty Ltd and The Courthouse Management Pty Ltd. Each company has issued share capital of $20. Mr Toma was the sole director, secretary and shareholder of each company. 3. On 18 September 2023, four contracts were exchanged. Taylor Square TT entered into a contract for sale of land in respect of the Kinselas Hotel with Kinselas and a contract for sale of land in respect of the Courthouse Hotel with The Courthouse (NSW) (the land contracts). Taylor Square Fund entered into a sale of business agreement in respect of the business of the Kinselas Hotel with Kinselas Management and a sale of business agreement in respect of the Courthouse Hotel with The Courthouse Management (the business contracts). Mr Toma executed each contract for the purchaser and again as guarantor. Each of the contracts included a guarantee by Mr Toma in the same terms, to which I will return at [32]. 4. Although the purchasers and Mr Toma ultimately called no evidence, the vendors tendered a portion of Mr Toma's affidavit detailing a series of high-value property and hotel acquisitions in which Mr Toma was involved from December 2020 on, often together with John Palasty's company, 32JKP Pty Ltd. In particular, in May 2023, Mr Toma had bought development land in Newcastle for $8.1 million through a special purpose vehicle, Newcastle Denison Pty Ltd (of which Mr Toma was the sole director and shareholder). Mr Toma had also bought the Adelphi Hotel in Melbourne for some $18 million through special purpose vehicle, Risby Cove Tas Pty Ltd (of which Mr Toma was sole director and shareholder). In August 2023, Mr Toma bought The Republic Hotel in Sydney for $38 million through special purpose vehicle, Republic Hotel Sydney Pty Ltd, of which he was sole director and shareholder. (Republic Hotel Sydney was the trustee of a fixed unit trust, in which Mr Toma's company, DGA Assets Pty Ltd, and Mr Palasty's company, 32JKP Pty Ltd, held equal units.) 5. The extent of the vendors' knowledge of Mr Toma's assets or business history at the time of entry into the contracts is not known. Presumably, the vendors satisfied themselves that Mr Toma had the financial wherewithal to ensure that the purchasers were in a position to pay for the land and businesses, where the special purpose vehicles incorporated shortly before entry into the contracts had issued share capital of $20 only. 6. The land contracts comprised 32 standard conditions (The Law Society of New South Wales Contract for the sale and purchase of land 2022 edition) together with 36 special conditions. The date for completion was six months after the contract date, that is, 18 March 2024. The purchasers could extend the date for completion for up to six months on certain conditions: cl 66. Failure to complete by the date for completion entitled a party to serve a notice to complete: cl 15. On completion, legal title passed to the purchasers and the purchasers paid to the vendors the price less any deposit plus all adjustments paid by cleared funds in PEXA: cll 16, 50.3. If the contracts were not completed by the Completion Date, the purchasers were obliged to pay interest to the vendors on completion: cl 38.2. 7. Clause 9 of the land contracts was amended by a special condition. If the purchaser did not comply with the contract, or a notice under or relating to it, in an essential respect, then the vendor was entitled to terminate the contract and sue the purchaser "and the Guarantor" for any loss on resale or damages for breach of contract. 8. Mr Toma was replaced as a director of the purchasers on 28 November 2023 by Mr Palasty, apparently as part of a broader restructure of multiple companies in which both gentlemen were involved. Mr Toma remains the sole shareholder of each company. 9. As detailed in Taylor Square, the date for completion was extended to 29 April 2024 on release of a deposit of $761,960.64 and subject to the payment of interest. On 20 March 2024, the vendors issued notices to complete, requiring completion by 4.00 pm on 29 April 2024. Settlement did not take place. On 18 June 2024, orders were made for specific performance by the purchasers on 1 July 2024, which did not occur either. Submissions 1. Mr Toma submitted that the only party with the obligation to pay the purchase price was the purchaser: cl 16.5. Mr Toma may have failed in his obligation to ensure that settlement happened, but that founded an action for damages at common law, not an action for specific performance. The Court would not expose him to a potential contempt proceeding absent clear language in his guarantee permitting specific performance. That language is absent: Taylor Square at [56]. Guarantees are to be construed strictly: Ankar Pty Ltd & Arnick Holdings Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549 at 561; JW Carter and JC Phillips, "The Liability of Debtors and Guarantors under Contracts Discharged for Breach" (1992) 22 Western Australian Law Review 338 at 359. Had the parties intended that Mr Toma be liable as a principal in relation to his guarantee, they would have said so. There is a distinction between a guarantee and an indemnity: Canty v Paperlinx Australia Pty Ltd [2014] NSWCA 309 at [37]-[40] (per Gleeson JA). While the contract includes an indemnity in cl 60.3, rendering Mr Toma liable as principal but only if the Purchaser is not bound, there is no similar obligation in cl 60.2. The vendors' appeal to "commercial sense" did not advance matters. If the parties contracted on a basis that rendered Mr Toma liable only in debt or damages, that was a function of their agreement reached between sophisticated commercial parties with the assistance of legal advice. 2. As to whether the Court may nonetheless order specific performance, Mr Toma relied on Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 253 (Mason CJ). The obligations to give title on one part, and to pay on the other, are concurrent obligations: Foran v Wight (1989) 168 CLR 385; 88 ALR 413 at 435 ("The obligation of a vendor to deliver a conveyance and the obligation of a purchaser to pay the price on completion are mutually dependent and concurrent obligations" per Brennan J); Frankcombe v Foster Investments Pty Ltd [1978] 2 NSWLR 41 at 48 ("the obligations of each party on settlement are dependent and concurrent" per Holland J). Ryan v UPG 322 Pty Ltd [2023] NSWSC 1293 is the only decision in which quia timet relief of specific performance has been discussed, let alone given against a guarantor and then in circumstances where the "critical" feature was that the guarantor's obligation was as a principal: at [77]. The discussion of quia timet relief arose only after identifying that the guarantor was also a principal: at [85]. Here, there was no present obligation on the purchasers as the date for settlement had not arrived and would not arrive. 3. Mr Toma further submitted that, where it was clear that the purchasers would never settle, there was nothing for equity to act quia timet in respect of. There was no concurrency between Mr Toma's position and the position of the purchasers to which equity would attach. He had no direct liability. In any event, there was no basis for equity to intervene where it was clear that the obligation would never be met such that there was no imminent risk that something was going to happen which would prompt equity to intervene. Here, settlement was never going to eventuate and, whilst that was an unfortunate commercial outcome for the vendors, that was a function of the drafting presented to the purchasers. Mr Toma had no present obligation and would never have any obligation, so there was nothing for the Court to order him to perform. 4. Mr Toma submitted that the case at hand was also different to those in which one guarantor obtains quia timet relief for contribution from another guarantor, and equity gives relief, notably, because a debt due and payable is owed to the creditor and the guarantor paying is entitled to contribution from a co-guarantor before payment is made: Lavin v Toppi (2015) 254 CLR 459 at [50] (per French CJ, Kiefel, Bell, Gageler and Keane JJ) quoting Friend v Brooker (2009) 239 CLR 129 at [52], "equity acts quia timet where the apprehended over-payment appears sufficiently imminent"); Bijkerk Investments Pty Ltd v Bikic [2020] NSWSC 1336 at [143]-[149] (per Leeming JA). To order specific performance against Mr Toma, the Court needed to be satisfied that he had a present obligation or would have such an obligation; neither was so in this case. Mr Toma was not obliged to perform the contract to which he was not directly a party. He had no direct liability and there was no role for quia timet to play in circumstances where the obligation could never arise. There was never an outcome in which Mr Toma personally had to perform the contract. In short, there was no contractual right entitling the vendors to have Mr Toma pay the purchase price absent the unlikely event that the properties were conveyed in advance of payment. That did not mean that the vendors had no remedy, but did mean that the vendors were not entitled to the relief sought. 5. The vendors accepted that, where the land contracts defined the obligation to pay the purchase price by reference to completion, the purchase price does not become a debt until a conveyance of the land had occurred. The obligations to pay the purchase price in the business contracts were interdependent of completion of the land contracts and thus the same must follow for these contracts as well. (Of course, a vendor would never transfer title and wait for their money, such that completion was a simultaneous exchange of title and payment.) However, Sunbird was not a suit for specific performance but an action in debt against the guarantor. Sunbird said nothing about the circumstances in which specific performance might be ordered, either against a purchaser or guarantor, as Parker J observed in Ryan at [65], [66], [78]. Once the nature of what was, and was not, decided in Sunbird was appreciated, then it was apparent that the decision posed no obstacle to a grant of specific performance. Rather, the question was whether equity should act quia timet: Ryan at [79] per Parker J ("All that is required is a sufficient risk of non-compliance to justify a decree"); Fairborne Pty Ltd v Strata Store Noosa Pty Ltd [2009] QSC 250 at [38] (Daubney J). The present circumstances were said to provide compelling reasons for such an order. The purchasers had failed to complete and also failed to comply with orders for specific performance. There was no suggestion that this situation would change. 6. Further, the vendors submitted that, where Mr Toma accepted that the second sentence of cl 60.2 amounted to a promise by the guarantor to pay a debt that is due and payable, there was no defence to a suit for specific performance as equity can act on a quia timet basis and should do so here where there is no prospect that the purchasers would perform: Ryan at [78]-[79] (Parker J); Mahoney v Lindsay (1980) 33 ALR 601 at 603 (per Gibbs J) ("if one party to a contract prevents the other from fulfilling a condition of the contract, that is equivalent to performance by the latter"). There were no relevant points of distinction between this case and Ryan. Parker J at [70]-[88] gave three reasons for rejecting the guarantor's argument that Sunbird required specific performance to be refused. The three reasons were independent. The first was: on the facts of that case there had been a default by the purchaser: at [71]. That was so here. The second was: that his Honour did not accept that the guarantor's obligation arose only on the purchaser's default: at [72]-[77]. That was also so here. The third and "fundamental" reason for rejecting the guarantor's argument was: that Sunbird was a claim in debt whereas equity, in the grant of an order for specific performance, can act quia timet: at [78]-[85]. That was the same as the present case. 7. The vendors submitted that Mr Toma's construction of the guarantee should not be accepted as it made no commercial sense. If, as Sunbird establishes, the obligation to pay the purchase price does not become a debt until a conveyance has occurred, then there will never be a situation where cl 60.2 requires Mr Toma to pay any money – rather, he will only ever be liable in damages. This would be a bizarre result because the obligation to pay the purchase price was the only obligation to pay money to the vendors (the obligations to pay the deposit, in contrast, were to pay the deposit holder as stakeholder). The same "[c]onsiderations of business commonsense" that motivated Parker J in Ryan at [74] and [75] were present here. On a proper construction, cl 60.2 made Mr Toma answerable for the payment of the purchase price in the event of the purchasers' default. This did no violence to the words of the clause and was the only way to give any commercial effect to its second sentence. It was true that the clause does not expressly say that he is liable "as principal", but "it does not automatically follow that the purchasers and guarantor do not have a concurrent liability, nor that the guarantor does not have a direct liability to the vendors": Taylor Square at [67]. The express inclusion of the language of "principal obligation" can be directed at ensuring that a variation to the principal contract does not discharge the guarantor's obligations: Lee v ATL Australia Pty Ltd [2023] NSWCA 327 at [97]-[103]. The vendors submitted that "obligations of the Purchaser" had not been performed, being an obligation to pay on settlement and also to comply with the Court's orders for specific performance. This was an "obligation … to pay money". The question was whether Mr Toma had a present obligation to pay this money or whether the vendors had to terminate the contract and sue him for damages. It would be a surprising result if the words "obligation … to pay money" only meant an obligation to pay the purchase price when it became a debt due. Principles of construction 1. Before considering whether the Court ought compel the guarantor to perform his obligations, it is necessary to consider the scope of those obligations. The guarantee forms part of a commercial contract. The relevant principles of construction are notorious, recently repeated in Laundy Hotels (Quarry) Pty Ltd v Dyco Hotels Pty Ltd [2023] HCA 6 at [27], quoting Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544 at [16] (per Kiefel, Bell and Gordon JJ): "It is well established that the terms of a commercial contract are to be understood objectively, by what a reasonable businessperson would have understood them to mean, rather than by reference to the subjectively stated intentions of the parties to the contract. In a practical sense, this requires that the reasonable businessperson be placed in the position of the parties. It is from that perspective that the court considers the circumstances surrounding the contract and the commercial purpose and objects to be achieved by it." 1. If after considering the contract as a whole and the surrounding circumstances, the Court concludes that the language of a contract is unambiguous, then the Court must give effect to that language unless to do so would give the contract an absurd operation: Cherry v Steele-Park (2017) 96 NSWLR 548; [2017] NSWCA 295 at [73]-[75] (per Leeming JA, Gleeson and White JJA agreeing). 2. When construing a contract of guarantee, the court is still entitled to look to the general setting in which the contract came into existence but the liability of a guarantor is strictissimi juris and ambiguous contractual provisions in a guarantee should be construed in the surety's favour: Ankar at 561; Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28 at [17]-[19], [23]. Doubt as to the construction of a guarantee "may arise not only from the uncertain meaning of a particular expression but from its apparent width of possible application": Bofinger v Kingsway Group Ltd (2009) 239 CLR 269 at [53] (per Gummow, Hayne, Heydon, Kiefel and Bell JJ). 3. As an aspect of the contra proferentum rule, it should be used whilst "bearing in mind the fundamental purpose of construction of a document, namely, to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it": Rava v Logan Wines Pty Ltd [2007] NSWCA 62 at [51], [53] (Campbell JA). As Campbell JA there explained, "The contra proferentem rule is to be used only where the document is otherwise ambiguous, and … is a principle of last resort …. Where it is understood in that way, the application of the principle for construction of guarantees … does not involve preparing a list of all the possible meanings of a clause that the language can bear without breaking, and choosing the meaning that it most favourable to the guarantor … Rather, the choice is limited to choosing amongst meanings that are fairly open by reason of the application of other rules of construction": at [55]-[56]. 4. The contra proferentum rule is of limited assistance here, where Mr Toma did not identify any ambiguity in the contractual provisions. 5. As to the scope of a guarantor's obligations, it has been said that the liability incurred by a guarantor when guaranteeing the principal's performance of a contract may be an undertaking by the guarantor to render the performance contracted for should the principal not render it or a promise to ensure ('to see to it') that the principal performs: M P Ellinghaus, "Essentials of the Modern Law of Guarantees" (1989) 2(2) Corporate & Business Law Journal 144 at 145-6. (Where the guarantor's obligation is to 'see to it' that the principal performs their obligations, then the guarantor may be entitled to an order for specific performance compelling the principal to perform their obligation: Moschi v Lep Air Services Ltd [1973] AC 331 at 348 (Lord Diplock).) Everything turns on the terms of the guarantee, where "the parties are at liberty to make such agreement as they choose": Sunbird at 256; Ellinghaus at 147. 6. In Sunbird, Mason CJ (Deane, Dawson and Toohey JJ agreeing) rejected any general proposition that a guarantee is an undertaking to 'see to it' that the principal contract is performed: "It is fictitious and quite unrealistic to suggest that this version of the guarantor's undertaking, rather than a promise to 'answer for' the debt or default of the debtor, is the true nature of the guarantor's obligation": at 256. In doing so, Mason CJ preferred the views expressed by Lord Reid in Moschi, where the House of Lords considered a guarantee of a debtor's payment of a £40,000 debt by weekly instalments. The question was whether the guarantor was liable for instalments due and payable when the contract between the creditor and debtor was terminated, or liable for all instalments payable under the contract even if not then due. Lord Reid observed at 344-345: "… there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. … There would then on the debtor's failure arise an obligation to pay. … On the other hand, the guarantor's obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do." 1. Lord Reid considered that the guarantee was of the latter type – the guarantor undertook that the principal would carry out their contract – and the guarantor was liable to pay damages, being all instalments payable under the contract even if not then due. (As Lord Reid noted, the two classes of guarantee considered in Moschi were not exhaustive.) Mason CJ agreed in Sunbird; where a guarantor gives an undertaking that a debtor will carry out their contract "a failure by the debtor to perform his contract puts the guarantor in breach of his": at 256. 2. In Sunbird, the vendor agreed to sell a home unit 'off the plan' to the purchaser. A deposit was payable on exchange of contracts and the balance was to be paid "upon settlement". Two guarantors jointly and severally guaranteed "THE PERFORMANCE BY the said abovementioned Purchaser OF ALL THE TERMS AND CONDITIONS of the Contract including the payment of all moneys payable hereunder by the said abovementioned Purchaser." The vendor obtained orders for specific performance against the purchaser, which were not complied with. The vendor then sought to recover the purchase price from the guarantors. That is, the Court did not consider whether the vendor was entitled to an order for specific performance against the guarantor, but whether the purchase price was "moneys payable" by the purchaser and thus within the scope of the guarantee. Where the contract of sale obliged the purchaser to pay the balance of the purchase price "upon settlement", the vendor was not entitled to sue for the purchase price where the contract had not been completed by conveyance, following McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 at 476 (Dixon J). 3. Mason CJ considered that the guarantors promised that the purchaser would perform their obligations including payment of all "moneys payable", but the balance of the purchase price did not become payable: at 257. Mason CJ rejected the suggestion that such a construction failed to give effect to the purpose which the guarantee must be taken to have served, where the terms of the guarantee were specific and clear on the point: at 257-8. Gaudron J came to a similar conclusion, observing at 271: "The guarantee does not in terms oblige the [guarantors] to pay the balance [of the] purchase price in the event of the purchaser's failure to complete the contract. In the context where, as here, the purchase price is payable by the purchaser upon settlement and is not recoverable as a debt prior to settlement, a promise of 'performance by the … purchaser of all the terms and conditions of the contract including the payment of all moneys payable …' does not, standing alone, import an obligation that the [guarantors] will themselves pay the balance purchase price if the purchaser fails to do so. Such an obligation, if it exists, must be spelt out from the word 'guarantee' in its particular contractual setting." Her Honour considered that the contractual setting did not permit the implication of an obligation that the guarantors would pay the purchase price, when regard was had to other contractual provisions which altered the guarantors' obligations if the contract was assigned by the purchaser: at 271-2. Construction of guarantee 1. As to the commercial context in this case, the contracting parties may be considered commercially sophisticated. The contracts comprised a suite of interdependent contracts with a large number of bespoke provisions. The contracts were drafted against a settled background of conveyancing law and practice, including the principles established by McDonald v Dennys Lascelles Ltd and Sunbird. Further, the vendors were selling $61 million of land and businesses to four recently incorporated special purpose vehicles, each of which had share capital of $20 only. The guarantor, Mr Toma, was the sole director and shareholder of each special purpose vehicle. 2. Clause 60 of the land contracts began: "60 GUARANTEE AND INDEMNITY 60.1 Consideration In this Contract and in this clause 60, "Guarantor" means all directors of the purchaser company. The Guarantor has requested the Vendor to enter into this Contract with the Purchaser and the Vendor does so in consideration of this guarantee and indemnity. …" 1. At the time the contracts were exchanged, Mr Toma was the only director and thus the only Guarantor. Clause 60.1 records, "The Guarantor has requested the Vendor to enter into this Contract with the Purchaser and the Vendor does so in consideration of this guarantee and indemnity." A reasonable businessperson in the position of the parties, considering the surrounding circumstances and the commercial purpose of the contracts, would have understood that the vendors looked to Mr Toma to bring the contracts of sale to a successful conclusion, by placing the special purpose vehicles in funds, either directly or by obtaining sufficient finance to complete the transaction, when the time came. In consideration for acceding to his request to contract with the special purpose vehicles rather than, say, directly with himself, Mr Toma provided the vendors with the protections and security conferred by the guarantee and indemnity. The question is the measure of protection in fact conferred by "this guarantee and indemnity". 2. Clause 60 continued: "60.2 Guarantee The Guarantor guarantees to the Vendor prompt performance of all of the obligations of the Purchaser contained or implied in this Contract. If the obligation is to pay money, the vendor may immediately recover the money from the Guarantor as a liquidated debt without first commencing proceedings or enforcing any other right against the Purchaser or any other person. 60.3 Indemnity If the Purchaser is not bound by some or all of its obligations under this Contract, the Guarantor agrees, by way of indemnity and principal obligation, to pay to the vendor the amount which would have been payable by the Guarantor to the Vendor under the guarantee in clause 60.2 had the Purchaser been bound. …" 1. The structure of cl 60.2 (the guarantee) and 60.3 (the indemnity) observes the distinction between a guarantee and an indemnity, as described in Canty v Paperlinx Australia Pty Ltd [2014] NSWCA 309 at [38]-[39]: (citations omitted) "Simply stated a guarantee is a binding promise of one person to be answerable for the debt or obligation of another if that other defaults. The distinctive feature of a contract of guarantee is the secondary nature of the obligation which is assumed by the guarantor. There must be another person who is primarily liable. In contrast, under an indemnity, a person assumes a primary liability. A contract of indemnity is "a contract by one party to keep the other harmless against loss" and is not dependent on the continuing liability of the principal debtor. An indemnity is an independent obligation to make good a loss." 1. I agree with Mr Toma that, unlike Ryan, his obligation is not direct or coordinate with the purchasers. There is no attempt by the draftsperson to impose a primary liability on the guarantor. While cl 60.3 records that the indemnity is a "principal obligation", cl 60.2 does not. Nor is this dispositive. The question remains whether the vendors are entitled to an order for specific performance against the guarantor given the content of his obligations. 2. Looking at the first sentence of cl 60.2, Mr Toma guarantees "prompt performance of all of the obligations of the Purchaser". "All" obligations include monetary and non-monetary obligations. As much is made plain by the second sentence, which sets out further details "If the obligation is to pay money". As to a guarantee to secure the performance of a purchaser's non-monetary obligations, Mason CJ observed in Sunbird at 255: (emphasis added) "Because many guarantees are given in relation to the payment of debts, it is common to speak of the parties to the relationship as creditor, guarantor and principal debtor. However, the payment of a debt is but one instance of the wide range of obligations the performance of which may be made the subject of a guarantee. Just as I may guarantee the payment of a debt so I may guarantee the performance of a contractual obligation which does not involve the payment of money. So it is that a creditor's rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract." Where Sunbird was concerned with a contractual claim, I do not take Mason CJ's exposition of contractual remedies to exclude equitable remedies which may be available in an appropriate case. 1. What is guaranteed in cl 60.2 is "prompt performance" by the purchasers of "all" obligations under the contracts, including those "contained or implied" in the contracts. The guarantor's promise to secure the performance of the principal's obligations may be collateral to the promise of the principal obligor and in the nature of a distinct and separate promise to perform the principal obligation if they do not: Jowitt v Callaghan (1938) 38 SR (NSW) 512 at 517 (Jordan CJ). Given the commercial context, a reasonable businessperson in the position of the parties would have understood that Mr Toma promised that his special purpose vehicles would perform their obligations under the contracts of sale on time and without delay. He would make it happen. The most important of these obligations, of course, was to complete the purchase of the land and businesses on the date required by the contracts. Given the simple, broad language used and the commercial context in which the guarantee was given, I consider that the first sentence of cl 60.2 is a distinct and separate promise to perform the principal obligation if the purchasers did not. 2. Turning to the second sentence of cl 60.2, "If the obligation is to pay money" the vendors may immediately recover the money from Mr Toma as a liquidated debt without first enforcing any rights against the purchasers. An obligation to pay money is not the same as a debt obligation, such as that considered in Sunbird (being when the vendor is entitled to sue in debt for the unpaid purchase price). In this context, "obligation" simply refers to the duty arising out of the contract: Mick Woodley (ed), Osborn's Concise Legal Dictionary (12th ed, 2013, Sweet & Maxwell) at 298. As Professor Carter put it, the obligation to pay money "more than any other promise … is inherently an undertaking that an event – payment to the payee – will occur": JW Carter, Carter's Breach of Contract (2nd ed, 2018, LexisNexis) at 46, [2-36]. The contracts in question contain multiple obligations to pay money, of which the most significant is the obligation to pay the balance of the purchase price on settlement. The precise content of that obligation changes from day-to-day, depending on when settlement takes place, after allowing for all adjustments and any interest. But the obligation to pay money arises under the contract before attendance at settlement. As the vendors submitted, "obligation … to pay money" is wider than an obligation to pay a liquidated debt and includes the only meaningful financial obligation under the contracts, being to pay the purchase price. 3. The second sentence of cl 60.2 provides that the vendor may enforce the obligation to pay money against the guarantor "as a liquidated debt", without first taking action against the purchaser. The guarantee is more favourable to the vendor than in Ryan. In the second sentence, the parties have simply agreed that the guarantor will pay the sum as a debt. Notwithstanding the common law position expounded in Sunbird, the parties have agreed that the guarantor will meet the purchaser's obligation to pay money as a debt obligation. Obviously enough, the parties can agree to vary the application of the common law to their particular transaction. As Professor John Carter explained, "The law of contract comprises many general and particular rules which determine the rights and obligations of the parties on a presumptive basis. These rules are 'default rules' in the sense that they apply unless the parties have agreed to the contrary: JW Carter, Contract Law in Australia (LexisNexis Butterworths, 8th Edition, 2023) at [2-02]. Specific performance 1. The vendors seek the assistance of the Court to compel the guarantor to perform his obligations according to the terms of the contract: Waterways Authority of New South Wales v Coal & Allied (Operations) Pty Ltd [2007] NSWCA 276 at [59]-[62] (per Beazley JA); Paolucci v Makedyn Pty Ltd (2021) 20 BPR 41,749 at [10]-[11] (per Leeming JA, White and McCallum JJA agreeing). In requiring the performance of a contractual term, equity is acting in aid of the plaintiff's legal rights: Paolucci v Makedyn at [16]. I have concluded that the scope of the guarantor's obligations includes an undertaking to render performance of the purchasers' obligation to complete the purchase if the purchasers do not. 2. As Parker J observed in Ryan, "equitable relief is granted on a quia timet basis which does not depend on any liability existing at law. I see no reason in principle why specific performance should not be granted against the guarantor on the same basis": at [85]. That is, monies do not need to be due and payable before equity can order the party with the contractual obligation to perform it. As his Honour observed, "The fact that (as Sunbird Plaza establishes) the purchase price is not currently a debt owing at law only reinforces the conclusion that relief at law is inadequate. It is a reason for granting specific performance, not for withholding it": at [78]. Further, at [79]: "In principle, specific performance does not depend upon a prior breach by the purchaser. Of course, in most specific performance cases there has been a refusal by the purchaser to go ahead with the contract. Specific performance as relief is granted because of the risk to the vendor (in the present case) that the other party to the contract will not comply with its obligations. In that sense, relief is granted quia timet, as Daubney J said in Fairborne. Usually, as in the present case, the refusal would give rise to a breach of contract and indeed a repudiatory breach. But this is not necessary. All that is required is a sufficient risk of non-compliance to justify a decree." 1. The land contracts and business contracts have not been terminated and remain on foot. The purchasers have repeatedly failed to complete the purchases on the date for completion as extended, as specified in the notice to complete or in accordance with orders for specific performance. The purchasers have not promptly performed their key obligation under the contracts. The guarantee is presently engaged. 2. What is the content of Mr Toma's guarantee of the purchasers' prompt performance of this key obligation? Following Sunbird, the vendors are doubtless entitled to sue Mr Toma for damages for breach of contract if and when the contracts are terminated. But that is not all that Mr Toma promised. By the first sentence of cl 60.2, the guarantor undertook to render performance if the purchasers did not. 3. There is every reason to think that Mr Toma will not ensure that the purchasers will promptly perform their obligations under the contracts. This is so notwithstanding that, when the contracts were executed, Mr Toma was "in complete control" of the purchasers, that is, unlike Mason CJ's comment in Sunbird, this was not the ordinary course where the guarantor did not control the borrower: Ryan at [76]. Whilst Mr Toma is no longer a director of the purchasers, his business partner, Mr Palasty, is. I consider it appropriate in all of the circumstances to compel the guarantor to perform his obligations. Orders 1. For these reasons I make the following orders: 1. Order that the Kinselas Land Contract, the Kinselas Business Contract, the Courthouse Land Contract and the Courthouse Business Contract (as those terms are defined in the Orders made on 18 June 2024) be specifically performed by the Fifth Defendant and carried into execution. 2. Direct that the Fifth Defendant pay the balance of the monies due under the Kinselas Land Contract, Kinselas Business Contract, Courthouse Land Contract and Courthouse Business Contract, inclusive of the balance of the purchase price, interest, and adjustments as required under the contracts, to the Plaintiffs or as the Plaintiffs direct, in return for the Plaintiffs conveying title to the properties and the relevant business assets to the Defendants through PEXA at 2pm on 23 August 2024. 3. Order the defendants to pay the plaintiffs' costs of the proceedings. 4. Grant liberty to apply on 24 hours' notice. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 09 August 2024