AITKEN v STATE BANK OF NEW SOUTH WALES [1993] NSWCA 3

AITKEN v STATE BANK OF NEW SOUTH WALES SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL

MAHONEY, CLARKE and SHELLER JJA 9 March 1993, 23 April 1993

[1993] NSWCA 3

The appellants were guarantors under a Facilities Agreement by which the respondents lent money to a company in which the appellants were interested. The company defaulted under the Facilities Agreement, giving the respondents the right to appoint a receiver.

The appellants, the respondents and the company reached an agreement at a meeting on 20 June 1990 to enable the company to realise its assets and pay its creditors in an orderly manner (the Realisation Agreement). At the meeting a representative of the second respondent wrote out a memorandum headed "Agreement". On 31 October, the respondents served a notice of demand on the company, which was not met. On 2 November the respondents appointed a receiver to the company. The question was whether the respondents, by the agreement of 20 June, bound themselves not to appoint a receiver pending the realisation of the company's assets. The respondents' representatives had made it clear at the meeting that there was to be no restriction on their right to demand repayment. This was not stated in terms in the memorandum, which did however state that the agreement was without prejudice to the rights of the parties under the Facilities Agreement.

The appellants argued as follows:

1. The memorandum wholly embodied the agreement reached on 20 June, and bound the respondents not to demand payment until the company had had reasonable time for realisation.

2. The agreement, if it did not so bind the respondents, was illusory because the appellants would derive no advantage from an agreement which would allow the respondents to call in the debt at will.

3. Alternatively the agreement obliged the respondents to defer the appointment of a receiver once the appellants and the company had performed obligations under the Realisation Agreement.