PURCELL v SPROULE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL MASON P, FITZGERALD AJA and HODGSON CJ in Eq 10 November 1998, 10 November 1998 [1998] NSWCA 177 CONTRACT — construction of loan agreement — plain promise to pay by borrowers whether as principal debtors or guarantors. Fitzgerald AJA The appellant, the defendant in the District Court, has appealed against a judgment in the respondent's favour for $277,009 plus costs. The dispute between the parties relates to a loan made by the respondent on 1 March 1991. That transaction was documented by a deed of agreement dated that day which was signed by the respondent, the appellant and another man, Mr Leigh Randell. The document was in the following terms: "Deed of Agreement between Reginald Norris Sproule of 8 Marinella Street, Manly Vale Sydney, New South Wales hereinafter called the Lendor and Vesodi Pty Ltd of 253 Broadway, Sydney New South Wales and Brian Gerald Purcell of 9 Yuruga Avenue, Caringbah, Sydney New South Wales and Leigh Randell of 137 St Johns Avenue, Gordon, Sydney New South Wales hereinafter called the Borrowers. Whereas the Lendor is lending to the Borrowers a sum of Two Hundred Thousand Dollars ($200,000) to be used within the business operated by Vesodi Pty Ltd and Vesodi Pty Ltd undertakes to pay interest to the Lendor at the rate of 17% (seventeen percentum) per annurn on the balance owing at any time. Now it is agreed that: 1. The Borrowers will recompense the Lendor for all costs and expenses incurred by the Borrower in making this loan including loss or deferral of interest. 2. The Borrowers will repay the sum lent on the following dates; a) $32,500.00 on the 4" April, 1991 b) $67,500 on the I May, 1991 c) $100,000,000 on the 1°' March, 1992 3 The Borrowers will each guarantee the repayment of the sum lent in accordance with 2a), 2b), 2c) above. 4. Interest will be payable at monthly intervals commencing 1 April, 1991. 5. The Borrowers further guarantee that Vesodi Pty Ltd will pay to the Lendor a sum of $46,397.16 prior to 30" June, 1993. This amount is interest free." It is common ground that some payments were made to the respondent and there is no challenge to his Honour's conclusion that of the $200,000 referred to in the recital to the deed of agreement, $126,850 remains unpaid. It is also common ground that Vesodi Pty Ltd has not paid the respondent the sum of $46,379.16 referred to in para5 of the deed of agreement. The trial judge awarded the respondent interest at seventeen percent on the sum of $126,850, bringing the total principal and interest in respect of that amount to $206,456. His Honour also awarded the respondent interest at the District Court rate on the sum of $46,397.16, bringing the total of principal and 2 UNREPORTED JUDGMENTS interest in respect of that amount to $70,553. The total judgment sum of $277,009 is the aggregate of the two sums of $206,456 and $70,553. Only two points were argued by the appellant. The first was that he was entitled to adduce oral evidence and I now quote from the written submissions: "To support the submission that on a proper construction of the agreement, he was a guarantor of the loan rather than a principal." From that it was said by the written submissions to follow that: "He is not liable to be sued as per the terms of the Amended Statement of Claim. If he is to be sued, it must be as a guarantor so that he may arrange his defence accordingly." The appellant's written argument gave no indication of any defence that might have been available to him as a guarantor but I will come back to that point. Numerous matters were raised in the appellant's defence in the District Court and in the notice of appeal to this Court but all except that referred to and another matter, to which I will come, have been abandoned. In my opinion, the respondent's argument on the initial aspect of the matter does not require this Court to discuss the well-established principles concerning the circumstances in which extrinsic evidence is admissible with respect to an agreement which has been reduced to writing. As I construe the deed of agreement, there is a plain promise to pay by each of the borrowers and nothing which was said called into question the operation of those promises, whether given as principal debtors or guarantors. Before this Court, the appellant was specifically asked what matter he would rely upon if the agreement was construed such that he was a guarantor and not a principal debtor. The only matter to which he could point was that, according to his submission, the respondent did not act immediately to enforce his entitlement to the principal sums on the date upon which they respectively fell due, thereby continuing to attract interest of seventeen percent per annum, on those sums, a submission which, as which will be seen, is inconsistent with the second part of the appellant's case. It is sufficient for present purposes for me to say that, even if the deed of agreement did constitute the appellant a guarantor and not a principal debtor, the matter to which he refers would not have exonerated him from liability under the deed of agreement. The appellant's other point is that, when the recital to the deed agreement and cl4 are taken together, the promise to pay interest at the rate of seventeen percent per annum on the sum of $200,000 lent by the respondent on the date of the deed of agreement was a promise by Vesodi Pty Ltd only and that the appellant did not promise to pay that interest, either as a principal debtor or a guarantor. In answer, the respondent relied upon cll of the deed of agreement. So far as that clause is concerned, the appellant contended, and I accept, that the word "borrower" in the second line should read "lender". Nonetheless, having accepted that submission, it does not seem to me to assist the appellant's case. My understanding of the operation of the agreement as a whole is that it is intended to ensure that the respondent will receive repayment of the sum of $200,000 advanced on the date of the agreement, together with interest on that sum at the rate of seventeen percent per annum and that he would also receive a further sum provided for in para5 of the deed of agreement interest-free. In my opinion, the proper way to read cll of the agreement, taken with the recital under which Vesodi Pty Ltd undertakes to pay the interest, it that it is Vesodi Pty Ltd which specifically agrees to pay the interest, is that Vesodi is to URJ PURCELL v SPROULE (Mason P) 3 pay that interest and the other borrowers promise to recompense the lender for any loss of interest which Vesodi fails to pay. Accordingly, in my opinion, neither of the matters raised by the appellant justify interference with the decision of the Court below and the appeal should be dismissed with costs. Mason P J agree and wish to add only this. Under modern pleading rules, in relation to pleading a cause of action based on a written document, the plaintiff will not be confined strictly to the basis upon which the document is construed in the pleading. From start to finish, this was a claim based on the deed of agreement. The notice of grounds of defence filed in the Court below contain defences on the basis that the defendant, the appellant in this Court, was asserting that he was a guarantor and not a principal debtor; and advancing various contentions on that basis. The learned trial judge addressed those contentions and dismissed them on their merits and no appeal from that dismissal has been advanced. It therefore seems to me to matter not whether, by a process of construction or admission of additional evidence, it could be shown that the appellant were a guarantor and not a principal debtor. I believe the better construction is that he was principal debtor and, while I believe that the evidence was inadmissible. Nevertheless, it seems to me to make no difference because of the way the matter was pleaded below and dealt with at trial. I agree with the orders proposed. Appeal dismissed with costs. The appellant appeared in person Solicitors for the appellant: Lorton Duke & Co Counsel for the respondent: G P McNally Solicitors for the respondent: Tesoriero Kwan