TYMS ENTERPRISES PTY LTD and ORS vy MARANBOY PTY LTD and ORS SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MAHONEY AP, CLARKE and MEAGHER JJA 30 November 1993, 17 March 1994 [1994] NSWCA 326 APPEAL from Equity Division — Construction of Deed — Right to insist on Bank guarantees — Waiver of right — Held: right waived. Mahoney JA Mr Mallos, Mr Souter and Mr and Mrs Tymczyszyn were concerned with,inter alia, two companies, General Plastics Pty Ltd and Yanak Pty Ltd. Disputes arose between them. The disputes were the subject of proceedings in the Federal Court of Australia. In order to settle the disputes, the parties entered into a deed of 27 October 1992. The deed required or involved action to be taken by the parties to the deed. Mr Tymczyszyn and those associated with him purported to rescind the deed. Mr Mallos, Mr Souter and Maranboy Pty Ltd, a company associated with Mr Mallos, sought specific performance of the deed. On 6 May 1993 Young J ordered that Mr Tymezyszyn and Tyms Enterprises Pty Ltd perform their obligations under the deed. An appeal has been brought to this Court against his Honour's order. The order made by Young J was based upon judgments delivered by him on 23 February 1993 and 6 May 1993. Mr Bret Walker for the appellants and Mr Jackson QC for the respondents have isolated the issues which are now in dispute between the parties and have confined the submissions made to this Court to those issues. In the event, neither side has sought to support the findings or the reasoning of the trial judge; in particular, neither has relied upon "the doctrine of proportionality" to which the learned judge referred. It is therefore necessary that I indicate what are the outstanding issues and the facts which bear upon them. I shall confine what I say to what is necessary for this purpose. It will be convenient to deal with what has been put to the Court under three headings: (1) the relationship between the parties and the companies; (2) the terms of the deed of 27 October 1992; and (3) what was done pursuant to the deed. (1) THE RELATIONSHIP BETWEEN THE PARTIES: General Plastics Pty Ltd carried on a business of significance to the parties. Shares in that company were held by Maranboy Pty Ltd and by Tyms Enterprises Pty Ltd. The Maranboy company was associated with Mr Mallos' interests, the Tyms company with Mr Tymczyszyn's interests. The role of Yanak Pty Ltd is not completely clear. It was one of the companies to be dealt with by the parties. Shares in it were held by Maranboy Pty Ltd and Mr Mallos and by the Tyms company. Mr Mallos and, it may be, Mr Souter had entered into obligations in the context of the operations of General Plastics Pty Ltd and Yanak Pty Ltd. These included obligations to a bank, Barclays Bank Australia Ltd. It was proposed that the business of General Plastics Pty Ltd be sold to another company Milnes 2 UNREPORTED JUDGMENTS Holdings Ltd and that the moneys derived from that sale were, in a practical sense, to provide for payments to Mr Mallos and to Mr Souter. It appears that the contemplation was that Mr Mallos and Mr Souter would discontinue their association with General Plastics Pty Ltd and Yanak Pty Ltd, that they would be released from such obligations as they had entered into in relation to those companies and that the Tymczyszyn interests would receive, as it was suggested in argument, the balance of the benefits available following the sale of the General Plastics business. 2. THE DEED: The deed was entered into to give effect to the change in relationship between the parties. It did not set out in clear terms the purpose sought to be achieved or what was to be done to achieve that purpose. To say this is not to criticise those concermed in the drafting of it: the exigencies of the drafting of it have not been detailed before this Court. But in order to understand the obligations undertaken by the parties and what was done under them, it is necessary to attempt a rationalisation of its provisions. In doing this I shall frame what I say in general terms and therefore, perhaps, the rationalisation of them will be not completely accurate. The deed contemplated that the business of General Plastics Pty Ltd would be sold to Milnes Holdings Ltd: CL1(a), and CL14. It is accepted that that sale was completed as contemplated by the deed. The deed provided that Mr Mallos should resign as a director of General Plastics Pty Ltd and Yanak Pty Ltd and should deliver to the relevant solicitors transfers of the shares held by Maranboy and himself in those two companies: CL8 and CL9. The Tyms company was to pay to Maranboy Pty Ltd $50,000. It was to pay to Mr Souter $200,000: CL7, CL11. It was, it would appear, contemplated that the Tymezyszyn interests would, in the result remain in control of General Plastics Pty Ltd and Yanak Pty Ltd. Accordingly, a number of ancillary provisions were made by the deed. These were directed, inter alia, to two things: to ensuring that neither General Plastics Pty Ltd nor Yanak Pty Ltd would have any claim upon Mr Mallos or Mr Souter; and to providing a measure of security for the payment to Maranboy Pty Ltd and Mr Souter of the sums of $50,000 and $200,000 respectively. It is the second of these, the security for these payments, which is primarily of significance in this proceeding. In order to understand the submissions made it is necessary to refer in more detail to these ancillary provisions. CLI and CL2 of the deed were in the following terms: "1. The terms of this Deed are subject to and conditional upon: (a) Completion of the sale of the business of General Plastics to Milnes Holdings Ltd in or substantially in accordance with the terms set out in a letter dated 1 October 1992 from Milnes Holdings Ltd to General Plastics; and (b) The agreement of Barclays Bank Australia Ltd to: (i) The assignment of debt; (ii) The discharge of its security over the assets of General Plastics; and (iii) The granting of the discharges, releases and Bank Guarantees all as provided in CL3, CL4, CL10, CL12(a) and CL13(a) hereof. 2. (a) Notwithstanding the provisions of CL1 hereof Tyms, Tymczyszyn and General Plastics may by notice in writing to Maranboy, Mallos and Souter declare this Deed unconditional at any time on or before 2 December 1992. (b) Upon the service of the notice referred to in CL2(a) hereof the parties will be unconditionally bound by the terms of this Deed." URWIS ENTERPRISES PTY LTD and ORS v MARANBOY PTY LTD and ORS (Mahone9 JA) No notice was given pursuant to CL2(a) but that clause has been relied upon, in the manner to which I shall refer, for the purpose of construing other provisions in the deed. It is accepted that completion of the sale of the business of General Plastics Pty Ltd to Milnes Holdings Ltd was completed in accordance with CLI(a). Accordingly, it is CL1(b) to which argument has been directed. CLI1(b) refers to CL3, CL4, CL10, CL12(a) and CL13(a) of the deed. CL3(a) required Mr Tymczyszyn and Tyms Enterprises Pty Ltd to procure that the Bank would release Mr Mallos from an indebtedness there referred to. CL4 provided that Tyms Enterprises Pty Ltd, Mr Tymczyszyn and General Plastics should procure that the Bank would release Mr Mallos and his spouse from other obligations and securities as there referred to. It has, I think, been accepted in this appeal that relevantly the Bank was prepared to do what was there referred to. CLI10 required that General Plastics Pty Ltd release Mr Souter from obligations there referred to. Again, no question arises for present purposes in relation to that clause. CL12 and CL13 made provision directed to ensuring that the amounts of $50,000 and $200,000 would be paid respectively to Maranboy Pty Ltd and Mr Souter. The relevant provisions were: "12. (a) To secure the obligations of Tyms pursuant to the provisions of CL7 hereof Tyms will on or before 2 December 1992 deliver to Maranboy an unconditional Bank Guarantee for payment of the said sum of $50,000 on or before 7 February 1994 (hereinafter referred to as 'the Mallos Bank Guarantee'). 13. (a) To secure the obligations of Tyms pursuant to the provisions of CL11(a) and/or (b) hereof Tyms shall on or before 2 December 1992 deliver to Souter an unconditional Bank Guarantee for payment of the said sum of $200,000 on or before 7 August 1994 (hereinafter referred to as 'the Souter Bank Guarantee' )." It is CL12(a) and CL13(a) and what was done in respect of them which are the basis of the issues now posed for decision. 3. THE EVENTS WHICH HAPPENED: 2 December 1992 was a central date in the operation of the deed and the discharge of its obligations. By about 27 November 1992, Mrs Tymezyszyn had indicated that she would not do what was necessary to procure from the Bank the bank guarantees provided by CL12(a) and CL13(a). The Bank apparently required that she enter into an obligation of some kind: it is not clear whether that obligation involved her personally or Tyms Enterprises Pty Ltd of which she was a director, or both. But she indicated and maintained that she would not do what the Bank required. It was for this reason presumably that the guarantees were not available. When this became apparent, it was necessary for Mr Souter and Mr Mallos to decide whether the guarantees would be insisted upon. It is claimed for the respondents that Mr Souter, on his own behalf, and Mr Mallos, on behalf of Maranboy Pty Ltd, indicated that they would not and that they did this prior to 2 December 1992. On 1 December 1992, the sale of the General Plastics business to Milnes Holdings Ltd was completed. On that day, a notice was given by the Tymezyszyn interests purporting to rescind the deed upon the ground, as then stated, that 4 UNREPORTED JUDGMENTS CL1(b) "has not and will not be satisfied". (It is accepted that no reliance is or can be placed upon that purported rescission: the appeal has been conducted on that basis). On 3 December 1992 the solicitors for Maranboy Pty Ltd, Mr Mallos and Mr Souter wrote to "confirm" their authority to reject the purposed rescission and to state "that they are prepared to waive those provisions of the deed relating to the furnishing of bank guarantees referred to in paral2(a) and paral3(a) of the deed...". The Tymczyszyn interests refused to perform the deed and, on 7 December 1992, the present proceeding for specific performance was commenced. On 11 December 1992 the Tymczyszyn interests again purported to rescind the deed. 4. THE ISSUES: In my opinion CL12(a) and CL13(a) were provisions at least primarily and, I think, solely for the benefit of Maranboy Pty Ltd and Mr Souter; and each of them, prior to 2 December 1992, waived performance of them. Accordingly, the Tymcezyszyn interests were not entitled to rely upon the failure to procure the Bank to provide the guarantees in question as a ground for rescission of the deed. (The term "rescission" has been used. More accurately, what is involved is the election of a party to terminate for breach of a condition precedent to further performance of the deed: see generally Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537; Sandra Investments Pty Ltd v Booth (1983) 153 CLR 153). The obligation to provide the bank guarantees was, in each case, stated to be "to secure the obligations of Tyms pursuant to the" provisions of the clauses providing for the relevant sums of money: see the opening words of CL12(a) and CL13(a). The obligations are contained in CL12 and CL13: reference is made to them in CL1(b) only in a consequential or referential sense. CL1(b) was not intended to provide a condition which operated notwithstanding that the parties might otherwise have effectively released the obligations imposed by CL12 and CL13. I see nothing in either of the CL12 and CL13 which goes beyond the stated purpose of providing security for the obligations to make the payments in question. Therefore, I think, it was open to Maranboy Pty Ltd and Mr Souter to waive performance of them. Mr Walker has in this regard referred to my decision in Togo DeveloPment No 10 Pty Ltd v Gibson (1973) 2 BPR 9260. I see nothing in what was there said inconsistent with this view of CL12 and CL13. It remains therefore to determine whether such a waiver was in fact made. The learned trial judge formally concluded that there was no effective waiver because "the purported waiver by the plaintiffs was too late". His Honour appears to have assumed that the only act of waiver on which the plaintiffs relied was the letter of 3 December 1992 to which I have referred. But, it was submitted, what had been done by the plaintiffs before 2 December 1992 constituted an effective waiver of the right to have the relevant bank guarantees. That was a matter on which the judge expressed no conclusion. In my opinion there was, prior to 2 December 1992, an effective waiver of that right. The proper conclusion from the evidence is that such a waiver took place on or before 1 December 1992. The co operation of Mrs Tymczyszyn was necessary for the operation of the deed in, inter alia, two respects: she had to accept obligations to the Bank to secure the release of the Mallos indebtedness to the Bank as provided by the deed; and she had to undertake further obligations to the Bank to procure the bank guarantees for the payment by Tyms Enterprises Pty Ltd of the two amounts of $50,000 and $200,000 to Mr Mallos and to Mr Souter. At first she refused to do anything in relation to either of these matters. URWIS ENTERPRISES PTY LTD and ORS v MARANBOY PTY LTD and ORS (Mahone§ JA) Subsequently, she agreed to do what was necessary for the first but not the second. This became apparent prior to 1 December 1992. Mr Mallos was aware of the significance of Mrs Tymczyszyn's refusal to do what was necessary to procure the two guarantees. He was a solicitor. He was plainly aware that the possibility of the transaction being repudiated by the Tymezyszyn interests was present to Mrs Tymezyszyn's mind and, in a conversation which, on 27 November 1992, he had with Mr Wowk, the solicitor for the Tymezyszyn interests, Mr Wowk had said that her attitude would mean that they "are not going to be able to satisfy one of the pre conditions under the agreement, and if that's so, in my opinion, Ted (Mr Tymczyszyn) is entitled to terminate". A number of conversations took place relating, inter alia, to the bank guarantees. These conversations are referred to in the affidavit evidence of Mr Mallos and of Mr Wowk. Each of them, and in particular Mr Wowk, made written records in relation to the conversations. In a conversation on 27 November 1992, Mr Mallos said that Mr Wowk informed him that Mrs Tymcezyszyn would not procure the bank guarantees and said: "In relation to the bank guarantees, you will just have to accept Ted Tymczyszyn's personal guarantee". He added: "... but she won't sign for those additional bank guarantees and we can only proceed on the basis of your accepting Ted's personal guarantees". Mr Mallos claims that he said: ""Well if that's all we can get we will have to accept it. I will have to speak to Ken Souter". Mr Wowk, in his affidavit, said that, on 27 November 1992, after referring to the position taken by Mrs Tymczyszyn, and to the entitlement of Mr Tymezyszyn "to terminate" he said to Mr Mallos: "Well, I won't have any instructions until late Monday at the earliest, and at this stage it looks like you should start thinking along the lines that the bank guarantees won't be available to you and Ken and the best you could get is a personal guarantee from Ted." Mr Wowk said that Mr Mallos said in reply that he would prefer a bank guarantee "... but if that is not available, I will have to consider a personal guarantee" and that he was "going to have problems with Ken". Mr Wowk deposed that further conversations took place on 30 November 1992. In that conversation, Mr Mallos said: "T'll accept a personal guarantee from Ted for my $50,000" and Mr Wowk said, "George, I've got no instructions on that'. Later that day, Mr Wowk said that he informed Mr Mallos that Mrs Tymezyszyn would sign bank documents upon conditions he then specified. The significance of those conditions in relation to the payment of $50,000 was, he said, further discussed. He said that later on the same day, 30 November 1992, Mr Mallos said to him: "T have spoken to Ken and Ken is prepared to proceed with the deal without the bank guarantee". Mr Wowk replied, "George, that's up to Teresa. I have got a meeting with her on Wednesday and until then I do not know what the final position is." On Tuesday, 1 December 1992, a further conversation took place between Mr Mallos and Mr Wowk. Mr Wowk's note was to the effect that he informed Mr Mallos that Mrs Tymczyszyn was "concerned to see that he did not lose his home but that beyond that I had no instructions until I spoke to her further and once I did I would get back to him". 6 UNREPORTED JUDGMENTS Following that conversation, Mr Wowk faxed to Mr Mallos the notice of rescission to which I have referred. Mr Wowk said that he has a diary note of a telephone conversation with Mr Mallos on that day at about 10 am during which Mr Mallos objected to the notice of rescission that had been sent. His note is: "He said that 'On my understanding of the Deed, the condition is in our favour. We could have waived it'. I did not comment. He said that 'I suppose I will have to send a document disputing your clients' ability to terminate the Deed'." That conversation, as detailed by Mr Wowk, establishes I think that Mr Mallos was conscious of the possibility of waiving the requirements as to guarantees. Mr Wowk said that later on the same day, at about 5.16 pm, he had a further conversation with Mr Mallos. The notice of rescission was discussed and Mr Mallos took further objection to it. Mr Wowk defended what he did: "I did what I needed to do to protect my client's position". He said that Mr Mallos then said: "T am going to write to you waiving those bank guarantees, then we are going to seek specific performance". Mr Wowk's diary note of that telephone conversation notes, inter alia, that: "He advised he would be writing to me asserting that they waived the pre condition and would be seeking specific performance". As I have indicated, a letter of waiver was forwarded by the solicitors on 3 December 1992. The evidence in relation to the waiver of the bank guarantees is less than it might have been had the significance of the waiver been recognised as what it is now seen to be. Mr Mallos dealt with the matter only in a brief affidavit. He was cross examined but little or no cross examination was directed to the important aspects of waiver. Mr Wowk's affidavit evidence was more detailed and it was documented by a number of diary notes. He was not called in evidence and, before this Court, no formal challenge was made to his evidence. However, in my opinion enough emerges from the evidence to warrant the conclusion that, on | December 1992, both Mr Mallos and Mr Wowk were conscious of the possibility that the right to have the bank guarantees might be waived and that it was the then intention of Mr Souter and Mr Mallos to waive them. On 30 November 1992, it had been said unequivocally by Mr Mallos, for Mr Souter, that Mr Souter was "prepared to proceed with the deal without the bank guarantee". Mr Mallos' authority to do so was not questioned. Mr Mallos had been discussing alternatives to the bank guarantees, viz, a personal guarantee by Mr Tymezyszyn and, perhaps, a sharing in the proceeds of the sale from General Plastics to Milnes Holdings Ltd. But by 1 December 1992, Mr Mallos had told Mr Wowk, for the Tymczyszyn interests, either that he was "asserting that they waived the" requirement for bank guarantees and "would be seeking specific performance" or that he was "going to write to you waiving those bank guarantees, then we are going to seek specific performance". What was then done constituted, I think, a present waiver of the entitlement to bank guarantees. By | December 1992, Mr Wowk would, in my opinion, have understood that the bank guarantees were not then insisted upon and that, if and insofar as the deed required things to be done on 2 December 1992, those things could be done without bank guarantees being given. If the Tymcezyszyn interests had, on 2 December 1992, proceeded to do what was necessary to give effect to the deed, it would in my opinion not have been open to Mr Souter or Mr Mallos to contend that what was done was wrongly done because bank guarantees had not been offered. URWS ENTERPRISES PTY LTD and ORS v MARANBOY PTY LTD and ORS (Meagher JAY Mr Walker has, as I understand his argument, accepted that if this conclusion be correct the appeal must fail. But, in view of what was said in argument, I shall refer to one further matter. I shall assume that the waiver of the requirement of bank guarantees did not become effective until the receipt of the letter dated 3 December 1992. That letter was received before the Tymczyszyn interests, by the notice of rescission of 11 December 1992, purported to put an end to the deed. In the circumstances of this case it was, in my opinion, open to the respondents effectively to waive the requirement for bank guarantees in such a way that specific performance of the deed was available to them. CL12(a) and CL13(a) obliged Tyms Enterprises Pty Ltd to deliver to Maranboy Pty Ltd and to Mr Souter the relevant bank guarantees "on or before 2 December 1992". If the guarantees were not provided by that date, Tyms Enterprises Pty Ltd was in breach of its obligations under those clauses. And, within the terms of CL1, the condition imposed by CL1 had not been satisfied by "the agreement of Barclays Bank Australia Ltd to" "the granting of the... bank guarantees... all as provided in clauses... 12(a) and CL13(a) hereof". But breach of the condition contained in CL1 depends essentially upon whether (as far as is now relevant) there was a breach of CL12(a) and CL13(a). It was, in my opinion, open to Mr Souter and Maranboy Pty Ltd to waive the performance of those clauses to the extent that the guarantees required to be available "on or before 2 December 1992". Thus, if Mr Souter had informed Tyms Enterprises Pty Ltd that his bank guarantee would be accepted if provided on 4 December 1992, it would not be open to Mr Souter to then claim that Tyms Enterprises Pty Ltd had been guilty of default under CL13(a). In such a case there would be no default under that clause and so no breach of a condition under CL1. What occurred in the present case, up to and on 1 December 1992, constituted a clear indication to Tyms Enterprises Pty Ltd that it would not be in breach of the deed if it did not, on 2 December 1992, provide the bank guarantees. As I have said, if there be no breach of CL12(a) and CL13(a) then CLI, being dependent on the agreement of the Bank being obtained "all as provided in" those clauses, is not contravened. This conclusion does not depend upon the conclusion that CLI created a condition for the benefit only of the respondents or any of them: it depends only upon the proper construction of CL1 and its relationship to CL12(a) and CL13(a). Submissions were made to the effect that on 2 December 1992, a breach of CLI occurred and that thereafter a waiver of the right to the bank guarantees would not be effective to prevent the Tymczyszyn interests, as parties for whose benefit the condition was imposed, electing to terminate the deed: see generally Suttor v Gundowda Pty Ltd (1950) 81 CLR 416; Perri v Coolangatta Investments Pty Ltd (1982) 149 CLR 537 at 545 et seq. It is not necessary for me to deal with those submissions. In my opinion, the appeal should be dismissed with costs. Clarke JA The appeal should be dismissed for the reasons given by Mahoney JA. Meagher JA I agree with Mahoney JA. Appeal dismissed with costs. Counsel for the Appellant: BW WALKER SC/NE ABADEE Instructed by: HOROWITZ and BILINSKY 8 UNREPORTED JUDGMENTS Counsel for the Respondent: DF JACKSON QC/VRW GRAY Instructed by: MALCOLM JOHNS and CO