Appeal Panel - Internal CITATION: Singh v Solomon & Ors (RLD) [2005] NSWADTAP 27 APPELLANT PARTIES: Raghubir Singh RESPONDENTS Isaac Solomon, Sarah Cooper and Elizabeth Oxman FILE NUMBER: 049050 HEARING DATES: 21/04/2005 SUBMISSIONS CLOSED: 04/21/2005 DATE OF DECISION: 06/16/2005 Solomon & Ors v Singh & Anor [2004] NSWADT 264 DECISION UNDER APPEAL: BEFORE: Chesterman M - ADCJ (Deputy President); Boyce P - Judicial Member; Weule B - Non Judicial Member CATCHWORDS: fail to correctly construe documents MATTER FOR DECISION: Principal matter FILE NUMBER UNDER APPEAL: 035094 DATE OF DECISION UNDER APPEAL: 11/18/2004 LEGISLATION CITED : Administrative Decisions Tribunal Act 1997 Retail Leases Act 1994 BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 CASES CITED: Solomon & Ors v Singh & Anor [2004] NSWADT 264 Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15 Walker v Bowry (1925) 35 CLR 48 APPELLANT REPRESENTATION: M Watts, barrister RESPONDENT S Bell, barrister ORDERS: 1. The appeal is dismissed; 2. Unless an application, with supporting submissions, is filed and served within 28 days, there will be no order for the costs of the appeal. If any such application is made, submissions by the opposing party must be filed and served within a further 28 days. The matter will be resolved 'on the papers', unless reasons are advanced for holding a hearing; 3. The proceedings are returned to the Tribunal, constituted by Ms S Higgins, Judicial Member, for determination in accordance with these reasons; 4. The parties are to attend for further directions at 11a.m. on 14 July 2005 REASONS FOR DECISION Introduction 1 In this case, the Respondents, Isaac Solomon. Sarah Cooper and Elizabeth Oxman, were the lessors of retail premises at Eagle Vale under a lease governed by the Retail Leases Act 1994. They instituted proceedings in the Tribunal against two guarantors, claiming money due to them under a deed of guarantee covering the obligations of the two lessees under the lease. The lessees had defaulted in the payment of rent. 2 The Respondents subsequently settled the proceedings against one of the guarantors, Dr Suman Sood, releasing her from all claims arising under the deed so long as she made monthly payments of specified amounts to them. They continued the proceedings against the present Appellant, Dr Raghubir Singh, who was the other guarantor. 3 The sole question arising for determination in this appeal is whether the Tribunal was correct in deciding that the deed of guarantee, properly interpreted, excluded the normal rule of law that a release granted to one co-guarantor has the effect of extinguishing the liability of other co-guarantors. 4 The Tribunal, constituted by Ms S Higgins, Judicial Member, reached this conclusion in a judgment delivered on 18 November 2004 (Solomon & Ors v Singh & Anor [2004] NSWADT 264). It accordingly rejected an application by the Appellant for the proceedings against him to be dismissed on account of the release of Dr Sood. 5 In order to identify precisely the question of interpretation raised before the Tribunal and in this appeal, it is necessary to set out the terms of several documents executed by the parties to these proceedings and by other parties involved in the relevant transactions. What follows is a modified version of the Tribunal's outline in its judgment at [3 – 14]. The registered lease and guarantee 6 The premises at Eagle Vale were initially leased by Woolworths Ltd to Maxicare Family Clinics Pty Limited ('Maxicare') for the period from 5 September 1995 to 4 September 2000 ('the registered lease'). This lease was registered as Lease No 0937276. 7 Clause 27 of the registered lease made provision for a guarantee and indemnity. So far as relevant, it stated as follows: 27. GUARANTEE AND INDEMNITY 27.1 The Guarantor agrees to guarantee the following to the Landlord: (a) the payment of all monies agreed to be paid by the Tenant to the landlord in this or in any extension or renewal of this lease; and (b) the timely performance and observance of all obligations of the Tenant contained or implied in this or in any extension or renewal of this lease". 27.2 The Guarantor is liable for and indemnifies the Landlord against all liability or loss arising from and cost incurred in connection with a breach or non-compliance by the Tenant of any of the Tenant's obligations in this or in any extension or renewal of this lease. 27.3 The rights of the Landlord under this Clause 27 remain fully enforceable and the liability of the Guarantor under this Clause 27 will not be affected even if one or more of the following occur: (a) ... (b) any release of the Tenant or the Guarantor, whether in whole or in part, or any compromise with the tenant or the guarantor; (c) any variation, extension or renewal of this lease or any holding over of the Term or other continued occupation of the Premises by the Tenant; (d) any composition, compromise, release, discharge, arrangement, abandonment, waiver, variation, relinquishment or renewal of any security or right by the Landlord, (f) any termination or determination of this or any extension or renewal of this lease, … 27.9 The Guarantor agrees that: (a) … (b) in the event that this lease is transferred or assigned by the Landlord to any person, the benefit of this Clause 27 will extend to the transferee or assignee and the benefit of this Clause will continue to ensure concurrently for the benefit of the Landlord irrespective of any transfer or assignment". 8 'The Guarantor' was defined in Clause 1.1 to mean 'the person named in Item 16'. The persons named in Item 16 were the Appellant and three other doctors (Dr S Amgad, Dr H Gobran and Dr S Francis). 9 On 19 February 1996, Woolworths Ltd sold the premises to the Respondents. The 1998 Deed and the Variation of Lease 10 On or about 4 May 1998 the parties agreed to vary the registered lease by extending its term for a further five years, to September 2005. It was also agreed that SS Medical Pty Limited ('SS Medical') should became a joint tenant, together with Maxicare, and that Dr Sood should became a guarantor, replacing Dr Amgad, Dr Gobran and Dr Francis. 11 This agreement was evidenced in two documents dated 4 May 1998. These were a Variation of Lease and a Deed of Consent to Assignment of Lease ('the 1998 Deed'). 12 The 1998 Deed was made between the Respondents (as Lessors), Maxicare (as Transferor), SS Medical and Maxicare (as Transferees), Dr Amgad, Dr Gobran and Dr Francis (as Outgoing Guarantors) and the Appellant and Dr Sood (as Continuing Guarantors). So far as relevant, it provided as follows: RECITALS: A. By lease registered No 0937276 … ('the lease')… … D. The Outgoing Guarantors have agreed to guarantee the lease to the date hereinafter set forth and the Continuing Guarantors will continue to be bound for the duration of the lease. E. The Lessors have agreed to consent to the transfer subject to the terms contained in this deed. THIS DEED WITNESSETH: 1. The Lessors consent to the transfer by the Transferor to the Transferees of all the estate and interest of the Transferor in the lease for which the effective date of the transfer is 6 April 1998 subject to the condition that the Transferees shall deliver to the Lessor a bank guarantee securing three (3) months' current rental… 2. The Transferees covenant with the Lessors to observe and perform all the terms and conditions of the Transferor in the lease. …. 4. The transfer of the lease by the Transferor to the Transferees shall not prejudice the rights of the Lessors against the Transferor and the Outgoing Guarantors under the terms of the lease PROVIDED HOWEVER that the Transferor and Outgoing Guarantors are released from all of their obligations (if any) referable to the extended portion of the term of the lease from 5 September 2000 until expiry of the extended term. 5. The Continuing Guarantors do acknowledge that they are respectively directors of SS (Medical) Pty Ltd and Maxicare Medical Clinics Pty Ltd and their guarantee of the lease shall be continuing and shall extend to the expiry of the term of the lease as varied by this Deed and by a Variation of Lease of even date. … 7. By Variation of Lease of even date the Lessor has agreed with the Transferees and the Continuing Guarantors to extend the term of the lease to 4 September 2005 and the covenants by the Transferees and by the Continuing Guarantors shall apply to the lease so varied. … 10. (a) Any covenant in this deed on the part of two or more persons shall be deemed to bind them jointly and severally. (b) The terms 'Lessors', 'Transferor', 'Transferees', 'Outgoing Guarantors' and 'Continuing Guarantors' include the successors, assigns and executors (if applicable) of those parties. … 13 Although Clause 7 of the 1998 Deed indicated that the Variation of Lease embodied an agreement between the Lessors, the Transferees and the Continuing Guarantors, the latter document was in fact executed only by the Lessors and by Maxicare and SS Medical as 'Lessees'. It provided for the extension of the lease until 4 September 2005, for annual increases of rent and for the delivery of the bank guarantee referred to in Clause 1 of the 1998 Deed. 14 In addition to these two documents, a transfer of the lease from Maxicare to Maxicare and SS Medical was executed and was registered at the Land Titles Office. The Deed of Release 15 The lease, as thus varied, was terminated in 2002 upon the appointment of a receiver to take over the affairs of Maxicare and SS Medical. On 26 August 2003, the Respondents commenced the present proceedings against the Appellant and Dr Sood. 16 The terms of the settlement of the proceedings between the Respondents and Dr Sood were set out in a Deed of Release dated 9 June 2004. It provided for instalment payments to be made to the Respondents by Dr Sood and contained a clause (Clause 3.1) stating that as from the date of the Deed they 'forever' released her 'from all Claims in respect to the Lease, Guarantee, and the matters referred to in the recitals hereof'. It defined 'the Lease' as 'the lease of the shop by the Lessee and guaranteed by the Guarantors' and 'the Guarantors' as 'Dr Sood and Dr Singh jointly and severally'. 17 It was common ground between the parties that, unless Clause 27.3(b) of the registered lease formed part of the guarantee given by the Appellant and Dr Sood to the Respondents under the 1998 Deed, Clause 3.1 of the Deed of Release would have the effect of releasing the Appellant, as well as Dr Sood, from all claims brought by the Respondents under the guarantee. This follows from principles stated by Starke J in the High Court in Walker v Bowry (1925) 35 CLR 48 at 58, to which the Tribunal referred at [22]. 18 Accordingly, as the Tribunal stated at [23], the question to be resolved was whether the 1998 Deed had the effect of creating a new agreement of guarantee that did not include Clause 27.3(b) of the registered lease. The Tribunal's decision 19 The Tribunal's ruling, at [23], was that 'the terms of the 1998 Deed were such that this clause [Clause 27.3(b)] continued to apply in respect of Dr Singh's obligations as a guarantor'. 20 At [24 – 27], it concluded, following an examination of relevant provisions of the 1998 Deed and the Variation of Lease (notably Clauses 2 and 7 of the former document), that the intention of the parties was to keep the terms of the registered lease on foot as between the Respondents and the Transferees (Maxicare and SS Medical), while varying it to the extent provided in the two documents and providing for the Transferees to be bound throughout the extended term of the lease by the covenants contained in the registered lease. 21 At [28 – 29], it held (a) that the Appellant was initially bound as a guarantor by the registered lease; (b) that his obligations under it, like those of Dr Amgad, Dr Gobran and Dr Francis, would have been extinguished by the 1998 Deed if Clauses 4 and 5 had not been inserted in this Deed, because the Transferees 'were not the lessee whose obligations they had agreed to guarantee under the registered lease'; and (c) that in these two clauses, which were 'intended to overcome this difficulty', the term 'lease' referred to the registered lease, in accordance with the definition in the recitals to the Deed. 22 At [30], the Tribunal set out its interpretation of Clause 4:- 30 Clause 4 of the 1998 Deed relates to the transferor (Maxicare) as well as the "outgoing guarantors" (Dr S. Magad, Dr H. Gobran and Dr S. Francis). In this clause, the transferor and the outgoing guarantors expressly agreed that the transfer of the lease did not prejudice the rights of the lessor against the transferor and the outgoing guarantors under the terms of the registered lease. However, they were released from any obligations under that lease which arose during the extended period of the lease (i.e. from 5 September 2000 to 4 September 2005). 23 At [31 – 32], it explained as follows its conclusion that, on a true interpretation of Clauses 5 and 7 of the 1998 Deed, their effect was to subject the Appellant to the covenants made by him in the registered lease, including the covenant set out in Clause 27.3(b):- 31 Clause 5 of the 1998 Deed expressly provides that Dr Singh agreed that his "guarantee of the lease" was "continuing" and extended through the extended period of the lease. In my opinion, by the use of the phrase "guarantee of the lease" the parties' intention was that the terms of Dr Singh's guarantee would remain the same as that contained in the registered lease. The only difference being a change in the identity of the lessee and an extension of his obligations for the extended period of the registered lease. 32 Such an interpretation is supported by the terms of clause 7 of the 1998 Deed. As mentioned above, this clause applies not only to the transferee, but also the continuing guarantors. Under this clause Dr Singh has agreed to the extension of the registered lease for a further 5 year period as well as agreeing that the "covenants" by him under the registered lease would apply to the extended period. This means that cl.27, in particular clause 27.3(b), of the registered lease continued to apply after 4 May 1998. The Appellant's submissions 24 The essence of the argument put by Mr Watts, counsel for the Appellant, was that while the terms of Clause 27.3(b) in the registered lease evidently formed part of the first guarantee (i.e., the guarantee given by the four individuals named in that lease, who were subsequently labelled the Original Guarantors), they could not have formed part of the second guarantee, which was a separate and independent guarantee granted by the Continuing Guarantors under the 1998 Deed. There were two reasons, he said, why this was the case. 25 First, Clause 7 of the 1998 Deed did not by its express terms incorporate Clause 27.3(b) into the second guarantee. It made no reference to this clause nor did it purport to modify it so as to render it applicable to the Continuing Guarantors. 26 Secondly, both the terms of the original lease and the principles governing the implication of contractual terms barred any argument that Clause 27.3(b) should be treated as an implied term of the second guarantee. In Mr Watts' submission, an immediate obstacle to this line of reasoning was the existence of provisions in this clause limiting its application to a release given to 'the Guarantor', as defined in the registered lease, and preserving the Respondents' rights only against any other 'Guarantor', as so defined. That definition referred to the Original Guarantors only, not to Dr Sood nor indeed to the Appellant in his capacity as a Continuing Guarantor. 27 Mr Watts argued also that the implication of such a term into the second guarantee would not be permissible within the principles laid down in leading authorities such as BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977) 180 CLR 266 (Privy Council) and Vodafone Pacific Ltd v Mobile Innovations Ltd [2004] NSWCA 15. In particular, the inclusion of a clause such as Clause 27.3(b) was not 'necessary' in order to give 'business efficacy' to the second guarantee (this being a condition stipulated in BP Refinery at 283-284), since this guarantee could operate quite effectively in accordance with the terms set out in Clauses 5 and 7 of the 1998 Deed. Our conclusions and orders 28 We have found this point of interpretation to be a difficult one. But our conclusion is that, as argued to us by Mr Bell on behalf of the Respondents, the line of reasoning adopted by the Tribunal is to be preferred to the arguments of Mr Watts. 29 While, as Mr Watts said, Clause 27.3(b) of the registered lease was not expressly included in the second guarantee, even in some modified form, it was, we think, incorporated by reference. The key point in the Tribunal's reasoning was its conclusion that the phrases 'their guarantee of the lease shall be continuing' in Clause 5 of the 1998 Deed (referring to the guarantee given by the Continuing Guarantors) and 'the covenants by… the Continuing Guarantors shall apply to the lease as so varied' in Clause 7 must be interpreted as referring back to the obligations of the guarantors as expressed in Clause 27 of the registered lease. 30 We agree with this conclusion. If these two phrases are not interpreted in this way, we do not see what other meaning they could have. They are sufficient, as we see it, to incorporate the whole of Clause 27 of the registered lease into the second guarantee, even though some modification is needed, strictly speaking, to take account of the limited definition of 'Guarantor' contained in the registered lease. 31 It will be seen that the issue of contract law raised in this appeal was, in our view, that of incorporation by reference rather than the identification of implied terms within a contract. 32 We consider also that, contrary to a submission by Mr Watts, the brief provisions of Clauses 5 and 7 of the 1998 Deed, standing alone, could not constitute a viable contract of guarantee between the Respondents and the Continuing Guarantors, even if some of the matters not covered in them could be resolved by resort to the principles governing implied terms. But we do not have to determine this issue specifically. 33 It should be noted that at the time of executing the 1998 Deed the Appellant was aware of the terms of Clause 27 of the registered lease and Dr Sood was, at the very least, on notice of them. This is not a case where the incorporation of terms from an earlier document into a contract could be claimed to have taken any of the contracting parties by surprise. 34 For these reasons, we dismiss the appeal. 35 Unless an application, with supporting submissions, is filed and served within 28 days, there will be no order for the costs of the appeal. If any such application is made, submissions by the opposing party must be filed and served within a further 28 days. The matter will be resolved 'on the papers', under s 76 of the Administrative Decisions Tribunal Act 1997, unless reasons are advanced for holding a hearing. 36 This issue was dealt with the Tribunal as a preliminary matter. The order that we have upheld does not dispose of the proceedings. They are accordingly returned to the Tribunal, constituted by Ms S Higgins, Judicial Member, for determination in accordance with these reasons. The parties are to attend for further directions at 11a.m. on 14 July 2005. 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.