McNAMEE vy R AND I BANK WESTERN AUSTRALIA LTD SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY, MEAGHER and COLE JJA 4 November 1994, 7 December 1994 [1994] NSWCA 201 Guarantee — effect of Deed of Novation, Amendment and Assignment upon rights liabilities of guarantor — Notice under s12 Conveyancing Act, 1900. FACTS: The appellant guarantor sought to have liabilities arising under a mortgage debt set aside on grounds that the Deed of Novation, Amendment and Consent, not executed by the appellant, (a) in CL2.1, operated as a novation rather than an assignment and (b) that notice of assignment had not been given to the guarantor as required under s12 of the Conveyancing Act. The appellant also made an application to argue CL23.1 of the deed, which clause had not been argued at first instance. HELD: (by Meagher and Cole JJA) (1) The effect of CL2.1 hinges on the words of assignment, not any distinction between novation and assignment. (2) The giving of a copy document executed by the assignor evidencing assignment of the assignor's rights constitutes express notice to the guarantor for the purposes of s12 of the Conveyancing Act. (3) Application to raise an argument upon a clause of the Deed not raised below should be refused. (By Mahoney JA, dissenting) (1) If the rights of the creditor against the principal debtor be varied, the guarantor is released as in this case where the effect of the Deed of Novation, Amendment and Consent was to vary the rights and obligations of the appellant/guarantor under the Deed of Loan and Guarantee. (2) The construction of a guarantee document in context may infer that the extent of the guarantee was limited to the benefit of the person so named in the guarantee. ORDERS: (1) Appeal dismissed with costs. Mahoney JA On 22 March 1994 R and I Bank of Western Australia Ltd ("the Bank" )issued a summons in the Commercial Division of the Court seeking judgment against Peter John McNamee ("PJM") for $3,589,475.68 plus interest. On 6 May 1994 the summons came before Giles J for hearing. On 20 May 1994 his Honour gave judgment for the Bank for $3,640,320.46. PJM appealed to this Court against his Honour's judgment. Meagher and Cole JJA are of the opinion that the appeal should be dismissed. Ordinarily I would hesitate to differ from their Honours, particularly as the parties followed the summary procedure adopted in the Commercial Division and the defences were, as Giles J said, limited. However, the amount involved is large. The basis of the argument as presented before this Court was not, I think, confined to the extent that it was confined below. And the rights of the parties appear to depend essentially not upon contested issues of fact but upon the understanding of the documents that were placed before the trial judge. Having considered the terms 2 UNREPORTED JUDGMENTS of the documents as they were before the trial judge and are now before this Court, I am unable to understand the basis on which PJM can be held liable for the amount in question. I am conscious that parties may, for their own purposes, choose to contest issues upon bases which are more limited than those which would otherwise be available to them. I am conscious also that, in the procedures adopted in the Commercial Division, steps are taken to isolate the real issues in dispute between the parties and to confine proceedings to the determination of those issues. It is not my purpose to cast doubt upon the utility or the finality of such procedures. But, having regard to the material that was before the Court, I am concerned that the judgment given against PJM may involve a substantial miscarriage of justice. Having reviewed the evidence before the Court, I have come to the conclusion that the appeal should be upheld. As my judgment to that effect will be a dissenting judgment, I shall state my reasons for that conclusion summarily and without detailing the matters to which ordinarily I would refer in support of those reasons. My conclusion involves the following: that the original transaction was a complex transaction in which the obligations of PJM were of the nature merely of a guarantee; that the transactions which subsequently took place, in 1992-1993, were such as would ordinarily result in PJM being no longer bound by the guarantee; that PJM refused to consent to those subsequent transactions; and that there was nothing in the original transaction which produced the result that, despite his refusal to consent to the subsequent transactions, he was bound by them and/or by the original transaction. 1. THE NATURE OF THE ORIGINAL TRANSACTION: The original transaction was not a simple loan supported by a promise of guarantee. It involved a complex of rights and obligations, entered into by a group of persons. As this is of relevance in considering the effect of the 1992-1993 transactions, I shall refer to the general structure of it. The original transaction to which PJM was a party was the Deed of Loan and Guarantee of 14 April 1989. It provided for the advance by Perpetual Finance Corporation Ltd ("Perpetual"), therein called "the Lender", to Palimaro Pty Ltd ('"Palimaro"), therein called "the Borrower", of amounts not to exceed in total $4,080,000. The Deed provided that three companies and two individuals (of which PJM was one) should be "the Guarantor" as therein provided. The obligations were essentially of the nature of a guarantee and their obligations were joint and several: CL23.10. The Deed of Loan and Guarantee envisaged that advances would be made by Perpetual to Palimaro from time to time in the manner there provided. Perpetual obliged itself to "make advances available for the Borrower" in the sum of "approximately $800,000 on the date of this deed" and the balance "in accordance with its (the Borrower's) written directions": CL3. Provision was made for payment of interest on the amounts outstanding and for repayment of "so much of the secured moneys as has not been repaid" on 14 April 1992: CL4.1. CL17 of the 1989 deed provided: "17.1 The Lender may assign or participate its rights or obligations under this deed or under any collateral security and may disclose the terms of this deed to any potential participant, assignee or transferee as the Lender in its discretion thinks fit. URJ McNAMEE v R AND | BANK WESTERN AUSTRALIA LTD (Mahoney JA) 3 17.2 The Borrower shall not be entitled to assign its rights or obligations hereunder." The Bank's contention has been that CL17 bound PJM contractually to any person to whom Perpetual chose to "assign" "its rights or obligations under this deed". 2. THE TRANSACTIONS OF 1992-1993: The secured moneys were not repaid on 14 April 1992 and Palimaro remained indebted to Perpetual for substantial amounts. No doubt because of this, there then took place the transactions which brought the Bank into the relationship with PJM relied on by the Bank. These transactions were not referred to at length by Giles J: no doubt, in view of the manner in which the issues were isolated in the hearing before him, it was not essential that it be done. But in order to understand the basis upon which it is claimed that, notwithstanding those transactions, PJM has become liable to the Bank, and in view of the way in which the argument developed before this Court, it is in my opinion necessary to advert to what then happened. What happened was described in the document filed by the Bank in accordance with the procedures of the Commercial Division. It performs the function of a Statement of Claim. It was described as "Nature of the Dispute". In this statement the Bank outlined what had happened in the following way. It recorded that on 14 April 1989 PJM had "guaranteed repayment by Palimaro... to Perpetual... of all of the moneys owing by Palimaro to the Bank (sic) and secured by the Deed of Loan and Guarantee...": CL2. The document then said: "3. On 13 November 1992, the plaintiff entered into agreement with Palimaro to refinance Palimaro's debt due to Perpetual under the Deed of Loan and Guarantee subject to the execution and delivery to the plaintiff of a Deed of Novation, Amendment and Consent under which the plaintiff was to take an assignment from Perpetual of Perpetual's rights, liabilities and obligations under the Deed of Loan and Guarantee. 4. On 12 March 1993, Perpetual, the plaintiff and Palimaro entered into a Deed of Novation, Amendment and Consent (the "Deed of Novation") pursuant to which the plaintiff, with the consent of Palimaro, took an assignment of Perpetual's rights, liabilities and obligations under the Deed of Loan and Guarantee, including Perpetual's rights under the guarantee given by the defendant. 5. As at 18 March 1994, Palimaro was indebted to the plaintiff in the sum of $3,589,475.68 together with interest accruing on that sum pursuant to the terms of the Deed of Loan and Guarantee as novated pursuant to the Deed of Novation. Despite demand, the plaintiff has not received any payments from Palimaro in satisfaction or reduction of this indebtedness. 6. On 20 March 1994, the plaintiff served demand upon the defendant for payment of the amount of $3,589,475.68 owing to it pursuant to the terms of the Deed of Loan and Guarantee." The document then stated the "Plaintiff's Contentions" as follows: "By the Deed of Loan and Guarantee as amended by the Deed of Novation, the defendant guaranteed the repayment by Palimaro of all moneys owing to the plaintiff under the Deed of Loan and Guarantee upon service of a demand upon the defendant. A demand dated 18 March 1994 has been served upon the defendant in the amount of $3,589,475.68. The defendant has failed to pay that amount or any amount at all. 4 UNREPORTED JUDGMENTS Accordingly, the plaintiff is entitled to judgment against the defendant in the amount of $3,589,475.68 plus interest and costs. (I shall add relevant underlinings to the documents). In the affidavit filed by the manager of the Loans Management section of the Bank, what happened in 1992 was recorded. Reference was made to the "agreement" referred to in CL3 of the Nature of Dispute document, namely, the agreement between the Bank and Palimaro "to refinance Palimaro's debt to Perpetual under the Deed of Loan and Guarantee subject to..." the conditions there referred to. The affidavit recorded that that agreement was made and/or evidenced by letters of 29 October 1992 and 13 November 1992. It was, it would appear, consequent upon that agreement that the two deeds of 12 March 1993 to which I shall refer were made. Having regard to the terms of the 1992 agreement, the two deeds of March 1993 carried out part only of the more elaborate transaction referred to in the 1992 agreement. That agreement provided for things which did not appear in the 1993 deeds. The "agreement" of 1992 was referred to in the Nature of Dispute as a binding agreement. It appears to be assumed that it was. If it was, then the two deeds of March 1993 were only part of a wider legal agreement, and the obligations entered into by parties to the 1989 agreement were affected not merely by those two deeds but by the other provisions of the 1992 agreement and whatever was done pursuant to them. In that event, the variation of the rights of the parties with whom PJM was associated in the 1989 deed were even more affected than appears from the two deeds of 1993, considered alone. It is perhaps possible to construe the 1992 agreement not as an agreement but as a non-binding transaction. In that event, it is necessary to deal with PJM's obligation to the Bank under the 1989 agreement upon the basis that those obligations were affected only by the two deeds of 1993. I see no reason why the "agreement" of 1989 should be treated otherwise than as a binding agreement. But as an alternative, I shall in favour of the Bank assume that the 1989 agreement should be treated as a non-binding transaction. I come now to consider the effect of what was done in 1992 and 1993. It appears from the letter of 29 October 1992 from the Bank to Mr John McNamee, Managing Director of Great Northern Industries Pty Ltd ("GNI") (one of the original guarantors) that the transaction contemplated by the parties was of some complication. The agreement of November 1992 involved, inter alia, at least two things: a change in the rights and obligations created by the 1989 deed; and new arrangements for the provision of finance direct to Great Northern Industries Pty Ltd. These two things were effected, as to part, by the two deeds of 12 March 1993. Those two deeds themselves were inter-related, not merely in their effect but also in their terms. To understand this it is necessary to refer to the agreement of 1992 and to those two deeds. As I have said, Palimaro had not performed its obligations under the 1989 deed. The principal had not been repaid as there provided and, as the letter of 29 October 1992 indicated, interest payments had not been properly made. It was a "condition" of the 1992 agreement that "Perpetual Finance Corporation Ltd's facility be brought, and kept, up to date". The letter of 29 October 1992 had three attachments. The first related to Palimaro and involved (I shall use a neutral term) the 1989 transaction and the rights and obligations arising from it. The second and third attachments referred to the advances to be made directly to GNI. The letter of 29 October 1992 provided: URJ McNAMEE v R AND | BANK WESTERN AUSTRALIA LTD (Mahoney JA) 5 "We have enclosed as Attachments I and II, facilities totalling A$5,194,000 for your consideration. The facility in Attachment I is structured to provide for straight forward Cash Advance finance. The structure is simple, easily administered, and cost effective. Further detail is provided in Attachment I. Details of working capital facilities are provided in Attachment II. Please note it is a condition of approval that all banking services be conducted with R and I in Sydney." The letter referred also to a "more intensive role" contemplated for accountants KPMG Peat Marwick "in monitoring GNI's cash flow and facility usage". It is not clear to which extent that monitoring was to affect the Palimaro arrangements. Attachment I provided for a "facility" to Palimaro as borrower stated as: "Facility: Cash Advance Facility with Bill Reliquefication Option, in the form of Assignment AND EXTENSION of Perpetual Finance Corporation Ltd's existing facility. Limit: Up to A$3,694,000. The final amount will not exceed outstandings under Perpetual Finance Corporation Ltd's facility at settlement." The maturity date was to be "Twelve months from the execution of the Assignment and Extension". The governing law was changed to the law of New South Wales. The final clause in Attachment I was: "Other Terms Subject to execution and delivery to the Bank of an and Assignment AND VARIATION of Perpetual Finance Conditions Corporation Ltd's existing Credit Agreement containing conditions for provision of this Facility, representations and warranties, securities documentation, CROSS DEFAULT, events of default, conditions precedent, covenants, which in the opinion of the Bank, are usual for a Facility of this size, type and purpose; and Updated valuations of the security properties prepared by previous valuers (instructed by the Bank) on the basis that the valuations will be relied upon for mortgage purposes." The 1992 agreement therefore envisaged that the documents subsequently executed would effect a "variation" of the 1989 deed and that the rights and obligations of the parties to it would involve the changed "conditions", "representations and warranties" and the like there referred to. On 12 March 1993 the two further documents were executed. It is I think to be inferred from the Nature of Dispute that they were the documents, or included the documents, referred to in the November 1992 agreement. The first of the documents was that relied on by the Bank. It is described as "Deed of Novation, Amendment and Consent". It was made between the parties to the 1989 deed, the Bank, and "mortgagors" but was not executed by PJM. It refers in terms to the 1989 deed and to the other deed, the Specialty Deed of 12 March 1993. The recitals of the deed include: "C. It is proposed that R and I be substituted for Perpetual under the Transaction Documents on the terms and conditions set out below. D. The Borrower, the Mortgagor and the Guarantor have requested R and I, inter alia, to extend the date for repayment of moneys owing under the Deed of Loan and Guarantee. E. R and I has agreed to such request on the condition, inter alia, that the Deed of Loan and Guarantee is amended on the terms and conditions set out below." The deed contained eleven main clauses of some complication. It is, in my opinion, clear that its purpose was, inter alia, that referred to in recital E, viz, to "amend" the obligations under the 1989 deed and that transaction. The date for repayment of the obligations under the 1989 transaction as far as cash payment 6 UNREPORTED JUDGMENTS was concerned was amended. The parties to that deed released and discharged Perpetual "from all liabilities (present or future, actual or contingent) arising under or in respect of each Transaction Document to which it is a party": CL2.1; and the relationship between the executing parties was to be that of the 1989 deed with the numerous amendments set forth in, inter alia, Schedule 4 of the deed. I shall not extend this judgment by setting out in detail the clauses of the 1993 deed. In my respectful opinion it is clear that the amount owing under the 1989 transaction as at March 1993 was, as between the parties executing the 1993 deed, varied or made subject to variation in a number of ways. Subject to the effect of what I shall say, the result therefore was that, as between them and the person claiming to recover the loan moneys or other moneys under the transactions, the amount recoverable was or at least could be different from the amount which would have been recoverable had the deed of March 1993 not been executed. The Specialty Deed of 12 March 1993 also provided for variation of the rights of the executing parties. It provided variation in matters of substance, eg, the time for repayment of amounts owing, and other matters, eg, the place for repayment and the laws which were to govern the various transactions. Again, I shall not lengthen this judgment by setting out in detail what was done. I come now to consider the effect of these transactions upon the liability of PJM as one of the guarantors under the 1989 deed. It is not in question but that a guarantor is prima facie released from his obligations if the extent of the obligations guaranteed by him is changed or if those to whom, by subrogation or otherwise, he may look if he is called upon under his guarantee are released or varied. See generally Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549; Phillips and O'Donovan, The Modern Contract of Guarantee (2nd ed) at 287 et seq. Thus, stated in terms of principle, if the rights of the creditor against the principal debtor be varied, the guarantor is released. He is released if the rights of the guarantor to pursue the principal debtor by way of subrogation or otherwise be varied. And he is released if his rights against his co-guarantors by way of contribution or otherwise be varied. In stating the position in this way, I am not referring to breach of contract by parties to such a transaction: see the Ankar case at 555-557. I am referring to a variation of the terms of the transaction: ibid at 557 et seq; and I put aside variations that are "insubstantial and not prejudicial to the surety" in the sense there referred to: at 559. The changes effected to the obligations of the parties under the 1989 deed by the 1992-1993 transactions would, were there nothing more, have such an effect as I have referred to. A new creditor was substituted. Rights and obligations existing or which might exist under the 1989 deed were varied. What was done varied what would occur upon, for example, the claim of PJM to be subrogated to the rights of other parties or to claim contribution from the other guarantors. 3. PJM DID NOT CONSENT TO THE VARIATIONS: The two deeds of 1993 were so drawn that all of the parties to the 1989 deed could have joined in them. It was perhaps contemplated that they would. But PJM refused to do so. He was entitled to refuse. The 1989 deeds were executed by the other parties and were brought into operation nonetheless. Therefore, if PJM is to be still bound by the 1989 deed, it is necessary for the Bank to show that there are provisions in the 1989 transaction which produced that effect. 4. THE EFFECT OF THE RIGHT TO ASSIGN: URJ McNAMEE v R AND | BANK WESTERN AUSTRALIA LTD (Mahoney JA) 7 The Bank has claimed, inter alia, that by CL17 of the 1989 deed, Perpetual had the right to assign its rights and obligations to the Bank and that what occurred fell within that clause. In my opinion, it does not. There are circumstances in which the guarantor, having accepted the right of other parties to vary those obligations in particular ways, may not complain of such a variation. In the 1989 transaction, it was provided that the guarantee should not be abrogated, altered, prejudiced or affected by, inter alia, the Lender "amending, varying, extending or renewing this deed or any collateral security or agreeing to any amendment, variation, extension or renewal thereof": CL23.6(h). That, I think, was not relied upon in the present case. If it was, I do not think that it avails the Bank. That which occurred in the present case would not fall within para(h). The substitution of the Bank for Perpetual and the change in the nature and structure of the obligations in question, coupled with the release of Perpetual from the obligations undertaken by it under the 1989 deed, would, in my opinion, fall outside the operation of that paragraph. The changes made were not amendments or otherwise of what CL23.6(h) envisaged; they set up completely new transactions, with rights and obligations quite different from those under the 1989 transaction. The Bank relied upon the contention that what occurred in 1992-1993 fell within CL17.1 of the 1989 deed and accordingly that PJM had become liable to the Bank. It may be accepted that a contract of guarantee, as a legal chose in action, is capable of assignment: in Loxton v Moir (1914) 18 CLR 360 the capacity to assign appears to have been accepted: see generally Phillips and O'Donovan Modern Contract of Guarantee (2nd ed) and 435 et seq. The contract of guarantee, considered as such, is not inconsistent with its enforcement not by the person to whom it is given but by an assignee from him. This, of course, does not mean that every form of guarantee is assignable in this way. Thus, it may inferred from the construction of the guarantee document, in the light of the admissible context, that it was intended to inure only for the personal benefit of the person so named in the guarantee. It is understandable that a guarantor may be content to bind himself to a creditor of known repute but not to one who is, eg, regarded as "a loan shark". Thus, in the present case, it is arguable that, though assignment is permitted by CLI7, the terms of the guarantee limit assignment to a "permitted" assignee: cf the definitions in CL1 of the 1989 deed and in particular the provision in CL1.3 that the reference to a party includes the party's "permitted assigns". I shall not extend this judgment by pursuing the significance of the fact that, qua PJM, the assignment to the Bank was not agreed. The right to assign a guarantee may not support a particular assignment where the promise to guarantee does not stand alone but is part of a complex of rights and obligations affecting a number of parties. The concept of the assignability of a guarantee is more difficult to accept where, for example, a promise to guarantee a debt is part of a complex in which the creditor has entered into obligations on its part and the principal debtor has on its part both rights and obligations. For the reasons to which I shall refer, it is not necessary for the decision of this appeal to consider how far CL17 of the 1989 deed operates to allow an assignment of this kind. Assuming that the obligation of PJM under the 1989 deed could effectively have been assigned so as to allow the Bank to sue PJM as guarantor in the manner that was initially available to Perpetual, I do not think that that is what was done by the 1993-1993 transactions. Upon whatever construction of the 1992-1993 8 UNREPORTED JUDGMENTS transactions, the result produced by those transactions was not a mere assignment: the rights and obligations of, inter alia, PJM were, as the result of them, changed significantly. I put aside provisions of the 1992-1993 transactions such as those changing the proper law of the obligations and where they were able to be enforced. There were other changes. Under the 1989 deed, the obligations of the guarantors in a sense crystallised at the date when the secured moneys were to be paid. At that date, the amount owing contingently by PJM became fixed, subject to the addition of interest and the like. But, on whatever view be taken of the purpose and effect of the 1992-1993 transactions, their purpose was, as far as concerned the parties executing the two deeds, to vary or permit the variation of that amount. The date on which it was to become payable was changed. And provision was made for differing rights and obligations in relation to interest and otherwise. Even if it be assumed that the parties intended the rights and obligations existing under the 1989 deed to stand alone, the rights and obligations of PJM were necessarily varied. Thus, for example, if the Bank had sued Palimaro in respect of the advances made under the 1989 deed, then on whatever construction be adopted of the 1992-1993 transactions, the Bank could have recovered, not the amount outstanding as at 12 March 1993 or as at November 1992, but only such amount as was due to it as the result of the transactions which had taken place in 1992-1993. If the view to be taken of the 1992-1993 transactions be that they operated upon the 1989 deed, then a fortiori the rights and obligations of PJM were varied. The 1989 transaction became part of a larger transaction, created by or pursuant to the agreement of November 1992. The rights of the parties executing the 1993 deeds became as the result not separately their obligations under the 1989 deed but those obligations as affected by the 1993 transaction and what had been done pursuant to it. In these circumstances, PJM would, in my opinion, not be held to the terms of his guarantee. What flows from this? The conclusion which I have reached as to the effect of the various transactions on whatever construction of them, differs from the view acted upon at the trial by the learned judge. In my respectful opinion, that understanding was incorrect. However, it was on the basis of that understanding that the parties argued the matter as they did and invited the judge to decide it as he did. But, if there be a misunderstanding, it is a misunderstanding as to the effect of the written documents and the construction or effect of them. Notwithstanding what I have said as to the procedure adopted in the Commercial Division, I am of opinion that liability should not be imposed where, on a proper understanding of the transactions, it does not exist. Accordingly, it is, in my opinion, appropriate that the matter be returned to the Commercial Division so that the rights and obligations of the parties may be considered upon what, in my opinion, is the proper understanding of them. The appeal should be upheld with costs, the orders made below should be set aside. The proceeding should be returned to the Commercial Division to be dealt with in accordance with the views which I have expressed. Meagher and Cole JJA By a Deed of Loan and Guarantee dated 14 April 1994 Perpetual Finance Corporation Ltd (Perpetual) agreed to make advances to Palimaro Pty Ltd (Palimaro), the repayment of which was guaranteed by the appellant. The guarantee was set out in CL23 which provided: URWMcNAMEE v R AND | BANK WESTERN AUSTRALIA LTD (Meagher and Cole JJA) 9 "23.1 In consideration of the lender making advances, granting accommodation or providing financial facilities to for or at the request of the Borrower in accordance with the terms of this deed at the request of the Guarantor and pursuant to the Guarantor's agreement so to do the Guarantor hereby covenants and agrees with the Lender to be jointly with the Borrower and severally liable to the Lender for the due and punctual observance and performance of the covenants, terms, conditions and provisions contained or implied in this deed to be observed or performed by the Borrower (all such consonants, terms, conditions and provisions being referred to as ("the Borrower's covenants") and further covenants and agrees with the Lender as follows. 23.2 The Guarantor hereby unconditionally and irrevocably guarantees to the Lender the due and punctual payment by the Borrower of all of the secured moneys by this deed at the time or times and in the manner set forth in this deed and the due and punctual observance and performance of the Borrower's covenants. 23.3. The Guarantor covenants with the Lender that: (a) if the Borrower fails to make due and punctual payment of the of the secured moneys the Guarantor will immediately upon demand by the Lender pay to the lender all such moneys which are outstanding; (b) if the Borrower fails to properly observe and perform any of the Borrower's covenants the Guarantor shall, at the option of the Lender, either immediately ensure the performance of such covenants or ensure payment to the Lender of the amount of any losses, damages, costs, charges or expenses of whatsoever kind which the Lender may suffer or incur by reason of the non performance or non-observance of the covenants;...""! The Borrower was Palimaro. The Lender was Perpetual. By CL1.3 of the Deed of Loan and Guarantee: "A reference to any of the parties includes that party's... permitted assigns." By CL17.1 it was provided: "7.1 The Lender may assign or participate its rights or obligations under this deed or under any collateral security and may disclose the terms of this deed to any potential participant, assignee or transferee as the Lender in its discretion thinks fit. 17.2 The Borrower shall not be entitled to assign its rights or obligations hereunder."2 On 12 March 1993 Perpetual, Palimaro and R and I Bank of Western Australia (R and I Bank) and others including other guarantors under the Deed of Loan and Guarantee, but excluding the appellant, executed a Deed of Novation, Amendment and Consent. It provided by CL2 as follows: "2.1 Novation by Assignment, Assumption and Release With effect on the Effective Date: (a) perpetual transfers and assigns to R and I all Perpetual's right, title and interest in and to each Transaction Document and any indebtedness (present or future, actual or contingent) arising under or in respect of each Transaction Document; (b) R and I accepts the transfer and assignment described in para(a) and assumes all Perpetual's liabilities (present or future, actual or contingent) arising under or in respect of each Transaction Document; and 1. Appeal Book, at 122, 123 2. Appeal Book at 121, 122 10 UNREPORTED JUDGMENTS (c) the Borrower, the Mortgagor and the guarantor each release and discharge Perpetual from all liabilities (present or future, actual or contingent) arising under or in respect of each Transaction Document to which it is a party. 2.2 Effect of Novation On and from the Effective Date: (a) each Transaction Document will apply as between R and I and the Borrower, the Mortgagor and/or the guarantor, as the case may be, as if R and I were a party to each Transaction Document in place of perpetual; (b) R and I will be entitled in place of Perpetual to the benefit of, and will be entitled to exercise all of the rights and remedies of Perpetual under, each Transaction Document; (c) the Borrower's, the Mortgagor's and the Guarantor's liabilities under or in respect of each Transaction Document to which it is a party will continue in full force and effect for the benefit of R and I."3 As the appellant did not execute this latter deed he is not bound by it. However R and I Bank claimed against him as assignee of obligations owed by Mr McNamee as guarantor to Perpetual under the Deed of Loan and Guarantee. Mr McNamee raised two defences only. First, that his obligation as Guarantor of Palimaro's indebtedness to Perpetual was extinguished because the Deed of Novation, Amendment and Consent extinguished Palimaro's liability to Perpetual, and thus Mr McNamee's liability as a guarantor, the effect of the second deed being to replace the pre-existing obligations of Palimaro to Perpetual with new obligations of Palimaro to R and I Bank which Mr McNamee had not guaranteed. Second, that as proper notice of the purported assignment had not been given to Mr McNamee as required by s12 Conveyancing Act 1919, R and I Bank was an equitable assignee only and thus had no capacity to make any demand that being a condition precedent to liability under the guarantee. In reasons for judgment dated 20 May 1994, Giles J rejected both contentions. Regarding the first submission his Honour, after discussing the concepts of assignment and novation, said: "By CL2.1(a) Perpetual assigned to R and I Bank the benefit of the Deed of Loan and Guarantee and, expressly Palimaros' debt. By CL2.1(b) R and I Bank assumed Perpetual's liabilities arising under or in respect of the Deed of Loan and Guarantee. To that point there was not a novation in the sense described above: there was an assignment plus the purported creation of a new contractual relationship between R and I Bank, taking on Perpetual's liabilities, and Palimaro. By CL2.1(c) Palimaro released perpetual from liabilities arising under or in respect of the Deed of Loan and Guarantee. This was a one-way discharge: there was carefully left extant Palimaro's liabilities to Perpetual arising under or in respect of the Deed of Loan and Guarantee, including its debt thereunder. In short, while there was a kind of novation in a loose sense of the creation of a new contract interwoven with an in one-sided discharge of the contract in the Deed of Loan and Guarantee, the novation did not extend to discharge of Palimaro's obligations to perpetual under the Deed of Loan and Guarantee. Rather, those obligations, and Palimaro's debt, were kept alive for the assignment in CL2.1(a). The result of the Deed of Novation, Amendment and Consent was that the obligation owed by A (Palimaro) to B (Perpetual) was thereafter owed to C (R and I Bank), but the transaction was not one by which the obligation previously 3. Appeal Book, at 124, 125 URWMcNAMEE v R AND | BANK WESTERN AUSTRALIA LTD (Meagher and Cole JJA) 11 owed by A (Palimaro) to B (Perpetual was discharged. The obligation remained on foot, and the element of novation was that C (R and I Bank) also took on a direct contractual relationship with A (Palimaro)."4 If his Honour intended that, after assignment, the liability of Palimaro to Perpetual remained, we respectfully disagree. In our view the proper construction of CL2.1(a) to CL2.1(c) inclusive is not to preserve any obligation of Palimaro to Perpetual. CL2.1(a) effectively assigned to R and I Bank Perpetual's right to claim from Palimaro its then or future existing indebtedness Thereafter Perpetual had no entitlement to sue Palimaro. Nor can Palimaro owe a debt to R and I Bank and yet be under some obligation to Perpetual. That follows, in our view, from a combination of CL2.1(a) and CL2.1(b), coupled with the circumstance that Perpetual, R and I Bank and Palimaro were all parties to the Deed of Novation, Amendment and Consent. As between Palimaro, Perpetual and R and I Bank there was an effective assignment of the obligations of Palimaro to Perpetual to R and I Bank. The assignment of all Perpetual's rights under the Deed of Loan and Guarantee having been effected pursuant to CL2.1(a) and CL2.1(b), CL2.1(c) and CL2.2(a) to CL2.2(c) inclusive do no more than state the consequences for the future resulting from such assignment. CL2(b) and CL2(c) make clear that the rights of Perpetual assigned by CL2(a) and CL2(b) to the R and I Bank remained for the benefit of the R and I Bank. One of the rights assigned by Perpetual to R and I Bank pursuant to CL2.1(a) was, subject to any notice question, the right to receive from Mr McNamee as guarantor pursuant to CL23 of the Deed of Loan and Guarantee, moneys due by Palimaro to Perpetual5. That was a right permitted to be assigned pursuant to CL17.1. It follows that, as the expression "Lender" includes its permitted assigns®, R and I Bank became a permitted assignee entitled to exercise the right to make demand upon Mr McNamee under the provisions of CL23 of the Deed of Loan and Guarantee. In our view Giles J was correct to reject the Appellant's first defence, although for the reasons we have expressed. In our opinion the question of the effect of CL2.1 does not hinge upon any distinction between novation and assignment: it hinges on the words of assignment actually used in clause CL2.1(a). Regarding the second submission, his Honour held that R and I Bank was a legal assignee and thus no question arose for determination whether an equitable assignee could make the demand required by CL23 preliminary to recovery on the guarantee. Giles J held that a letter dated 21 January 1993,preceding the assignment, which enclosed draft documents in contemplation of it, and a letter of 1 September 1993 from R and I Bank's solicitors forwarding to Mr McNamee an executed copy of the Deed of Novation, Amendment and Consent, constituted the giving of the notice required by s12 Conveyancing Act. The Appellant argued that the former letter could not constitute notice as it preceded assignment, and the latter which merely enclosed a copy of the deed was inadequate. Reliance was placed upon Consolidated Trust Co Ltd v Naylor'. In our view there is nothing in the passage in Consolidated Trust Co Ltd v Naylor relied upon which denies the proposition that to forward to the guarantor a copy of the deed executed by 4. Appeal Book, at 129, 130 5. CL23.3(a), Appeal Book, at 21 6. CL1.3, Appeal book, at 10 7. (1936) 55 CLR 423 at 43 - 9 12 UNREPORTED JUDGMENTS the assignor and containing an express assignment of the assignor's rights against the guarantor is the giving of express notice in writing to the guarantor. In our view, to give a person a copy of the document executed by an assignor effecting the assignment is to give him in writing express notice of that assignment. Application was made by the appellants for leave to to raise, or consider raising, a new argument based upon CL23.6(d) of the original deed. The matter was not raised below. The application should be refused. In our opinion each of the five grounds of appeal, which restated the two defences rejected by Giles J, fail. The appeal should be dismissed with costs. Appeal dismissed with costs. Counsel for the Appellant: CR Newlinds Instructed by: AG Robinson Creais Counsel for the Respondent: JE Thomson/ AK Otteson Instructed by: Blake Dawson Waldron