New South Wales Supreme Court CITATION : SECURITY PACIFIC GOLD LIMITED v BALDERSTON & ORS. [1999] NSWSC 755 CURRENT JURISDICTION : COMMON LAW FILE NUMBER(S) : 11032/1992 HEARING DATE(S) : 28-29 June 1999 JUDGMENT DATE : 28 July 1999 PARTIES : SECURITY PACIFIC GOLD LIMITED v LEON RODNEY BALDERSTON & ORS. JUDGMENT OF : Master Malpass COUNSEL : PLAINTIFF: MR P O'LOUGHLIN FIRST DEFENDANT: MR G McNALLY SOLICITORS : PLAINTIFF: GREAVES WANNAN & WILLIAMS FIRST DEFENDANT: DEACONS GRAHAM & JAMES CATCHWORDS : Construction of guarantee; guaranteed obligations referable to a lease at law only. ACTS CITED : N/A Chan & Anor v Cresdon Pty Limited (1989) 168 CLR 242. CASES CITED : Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337. Telado Pty Limited v Vincent (Court of Appeal 19 July 1996). DECISION : SEE PARAGRAPH 27. THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION MASTER MALPASS WEDNESDAY 28 JULY 1999 11032/1992 SECURITY PACIFIC GOLD LIMITED v LEON RODNEY BALDERSTON & ORS JUDGMENT 1 The proceedings were commenced in 1992. The claim now propounded by the plaintiff is pleaded in the Second Further Amended Statement of Claim filed on 21 April 1998. It is a claim for judgment in a monetary sum. 2 The hearing commenced on 28 June 1999. The contest is between the plaintiff and the first defendant. The second and third defendants did not appear at the hearing. 3 The parties have relied on affidavit evidence. Messrs Selles, Whitley, Morrison, Collins and Procajlo have each sworn an affidavit for the plaintiff. The first defendant relies on his own affidavit. Save for Mr Whitley, each deponent has been cross-examined. There has been a tender of documentation. 4 At all material times, Sydney Cove Redevelopment Authority was the owner of premises known as the Clock Tower Building. A head lease was granted to CBD Investments Pty Limited (CBD). There was a sub-lease of part of the premises to the plaintiff. On 1 February 1991, there was a sub-lease of part of the premises from the plaintiff to Aust In Capital Corporation Limited (Aust In) for a term of more than 3 years. The sub-lease (although in registrable form) was not registered (there were delays and Mr Procajlo did not lodge it for registration because by that time Aust In had ceased its occupation). A copy is an annexure to the affidavit sworn by Mr Whitley. It contains a definition of "The Lease" (it means "The Lease of the demised premises"). It was common ground that the sub-lease was not now capable of being made the subject of an order for specific performance. 5 The date for commencement of the sub-lease was expressed to be 1 February 1991. Aust In was not permitted to move into occupation until a bank guarantee had been provided. The bank guarantee was a requirement of the sub-lease (clause 12.01). Aust In was desirous of entering into possession and had not been able at that stage to arrange a bank guarantee. As an interim measure, until the bank guarantee was arranged, Aust In was allowed into possession after a personal guarantee had been provided by its directors. It was provided in the form of a Deed of Guarantee made on 5 March 1991 (the Deed). The Deed was executed by the directors for Aust In (who are the defendants in these proceedings). 6 Although the first year of the sub-lease was rent free, Aust In was obliged to pay outgoings. Certain outgoings became outstanding. Aust In was required to both pay these outgoings and provide the bank guarantee. Whilst the outgoings were subsequently paid, the bank guarantee was never provided. 7 In early October 1991, the plaintiff came to the view that the sub-leased premises had been abandoned. On 11 October 1991, the plaintiff re-entered the premises. Thereafter, the plaintiff took steps to re-let the premises. On 30 March 1992, Aust In went into liquidation. On 21 August 1994, a new sub-lessee moved into occupation of the premises. On 5 December 1997, there was a voluntary liquidation of the plaintiff. 8 On 29 June 1999, after oral evidence from Mr Selles had been taken, the plaintiff made application to further amend its originating process. The Second Further Amended Statement of Claim pleads that on or about 10 October 1991, in breach of its obligations under the sub-lease Aust in abandoned the premises and thereby repudiated the sub-lease. The purport of the proposed amendment was to expand the allegations of breach by adding the allegations of failure to provide the bank guarantee and failure to pay certain outgoings. 9 The application to amend was opposed by the first defendant. Counsel for the first defendant informed the Court that he needed further time to consider the potential implications of any such amendment. That there was a need for such opportunity was not in dispute. It was common ground that if leave to amend was given it may be necessary to grant an adjournment of the proceedings. 10 A consensus then emerged between the parties as to the further conduct of the proceedings. Whilst the application remained on foot, further consideration of it was deferred. The course was then taken to complete the evidence and to then as a separate question hear submissions on a Defence raised by the defendant (it is raised in paragraphs 3 and 5 of the Second Amended Defence). This was a Defence founded on the judgment of the majority in the High Court decision of Chan & Anor v Cresdon Pty Limited (1989) 168 CLR 242. It was common ground that if the first defendant was successful on the Defence, the plaintiff's case must fail. 11 The plaintiff's case is founded on the Deed of Guarantee. A copy of the Deed is Annexure C to the Affidavit sworn by Whitley. Relevant provisions are inter alia the first recital and clause 1. The first recital is in the following terms:- "The Lessor has sub-let to Aust. in Capital Corporation Limited (hereinafter called 'the Lessee') certain premises known as part of Level 4, 55 Harrington Street, Sydney pursuant to a sub-lease dated the day of 1991 (hereinafter called 'the Lease')." Clause 1 is in the following terms;- "In consideration of the premises the Guarantor as evidenced by his execution hereof guarantees the due performance by the Lessee of all the terms and conditions of the Lease and covenants that he will upon demand pay to the Lessor all moneys which may become due to the Lessor thereunder and remain unpaid for a period of seven (7) days and will be responsible for the due compliance by the Lessee with all the terms and conditions thereof in the same manner and to the same extent as if they were a party thereto and covenanted as Lessee without the necessity of the Lessor giving any prior notice to them or requiring the payment of such moneys or to remedy any default by the Lessee". 12 The first defendant says that Chan has application in this case. The plaintiff propounds a view to the contrary. The dispute throws up a question of construction of clause 1. 13 The relevant issue is whether or not the plaintiff's monetary claim can be said to be referable to moneys which may become due under "the lease" [and "thereunder"] in the sense that the terminology is used in clause 1. The plaintiff's monetary claim was made in respect of money said to have become due under the sub-lease. In Chan , it was held that the guaranteed obligations were referable to a lease at law (which in that case meant a registered lease) only. In that case, the majority were of the view that it was obvious that the parties had intended that the lease be registered and that in the circumstances of that case there was an obligation to register or procure registration (pp. 247-248). It was said that the phrase "this lease" meant "the instrument of lease in its character as a lease". In this case also, a lease at law has to be a registered lease. The High Court rejected the contention that the Chan guarantee attracted liability to pay rent under either an equitable lease or a common law tenancy. 14 The plaintiff accepts that Chan is binding authority. It seeks to distinguish the decision in the light of the particular facts of this case. The decision had been distinguished by the Court of Appeal in Telado Pty Limited v Vincent (19 July 1996). In that case, there were provisions in the guarantee of a nature which are not present in this case. The decision turned on the construction given to those provisions. The view was taken that it was the intention of the draftsman to impose on the parties obligations to which they would, or might, not have been subjected in the event that the lease was not registered. It was said that the provisions made it clear that the subject lease was not necessarily intended to operate as a lease at law. 15 Counsel for the plaintiff has reduced his submissions to writing. The writing was amplified by oral argument. It is convenient to identify these submissions by reference to the writing. 16 There were submissions which sought to distinguish the present case from that before the Court in Chan . The submissions were as follows:- "The guarantee in this case was in the form of a different document and not part of the lease as in Chan v Cresdon. The wording is different and is more extensive. ……… The clauses are to be construed differently. The clause in this case is wider and extends liability to the guarantors, 'in the same manner and to the same extent as if they were a party thereto.' The recitals indicate the purpose for which the guarantee was prepared, that is to suit the particular difficulties faced by Aust In in being unable to produce the bank guarantee as a precondition to being allowed occupation. Clause 2 contemplates the continuing nature of the guarantee and that the obligations under 1 are absolute, unconditional, irrevocable and remain in force until the provision of the bank guarantee. Clause 4 clearly indicates that the guarantee is to be in addition to any other rights that the plaintiff may have against Aust In." 17 I have had regard to these submissions. In my view, they do not throw up any matter which can lead to the present case being distinguished from the guarantee construed in Chan . For completeness, I shall add some further observations. 18 Clause 1 is a longer covenant. There are some differences in terminology between it and the Chan guarantee (inter alia "the lease" and "this lease" on the one hand and "thereunder" and "under this lease" on the other hand). The Deed was a separate document which had been executed subsequent to the sub-lease. These matters go towards explaining some of the differences in terminology. 19 Despite the differences, it seems to me that the Deed was largely similar in effect to the Chan guarantee. In any event, I am not satisfied that any of the matters raised by these submissions are of significance in determining the question of whether or not the terms "the lease" or "thereunder" should not be regarded as referable to a lease at law. 20 An alternative argument was also put. It relied on what was said by Mason J as he then was in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337 AT 352. 21 The submission was in the following terms:- "Alternatively, the guarantee is ambiguous and it is not clear on its face as to whether or not it is intended to apply only if the lease is registered". "The surrounding circumstances are that Aust In was anxious to gain occupation, it could not get the bank guarantee as required by the lease, its solicitors suggested the directors' guarantee method, the same solicitors prepared the guarantee and arranged for its signature, submitted the guarantee for approval and the presence or absence of registration of the lease was not a matter which was in the contemplation because the urgency was to secure occupation. The fact also is that the sublease was conditional on the completion and registration of the CBD lease and the giving of consent by CBD to the lease. (see annexure 'A' to the Whitley affidavit p. 3 and the letter from Greaves Wannan & Williams of 24 January 1991, Procaljo pp 6 & 7) (sic) This was a fact clearly known to Aust In and its solicitors who presumably informed each of the guarantors. The parties certainly had in contemplation that the lease ultmately (sic) be registered, but that was not a condition precedent to the effectiveness of the guarantee. The parties contemplated that there would be a period where the plaintiff needed to be protected and protected both until the bank guarantee was provided and it is submitted until the lease was registered. Chan v Cresdon should be confined to the case where the plaintiff sought to call upon the bank guarantee as contemplated by the lease as it would have been entitled to do in the event that it had been provided in accordance with Aust In's obligations under the lease. It could have not been the intention of the parties to have the guarantee conditional upon the registration of the lease which could never have taken place prior to occupation in any event." 22 Codelfa is authority for the proposition that evidence of surrounding circumstances is admissible to assist in the interpretation of a contract if the language is ambiguous or susceptible of more than one meaning. In my view, if there be ambiguity in this case, I am not satisfied that the said surrounding circumstances lead to the result contended for by the plaintiff. 23 It is common ground that it was contemplated by the parties that the lease be registered. Also, as in Chan , there was an obligation to register or procure registration. The plaintiff accepted that this was its responsibility. It is accepted by the plaintiff that Chan would have applied to any bank guarantee given pursuant to the sub-lease. It could be expected that the interim measure would have been intended to stand in the same position as the bank guarantee contemplated by the sub-lease. 24 In Chan at p. 256, the majority applied the traditional view that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety. It was referred to as a settled principle governing the interpretation of contracts of guarantee. As was said in that case, there is no justification for reading the guarantee as extending to obligations which do no arise under a lease at law. In my view, a similar position applies in this case. 25 The written submissions raise an argument founded on estoppel. It became apparent during oral submissions that this argument was beset with problems. It was thereupon abandoned. 26 In my view, the Defence argued by way of separate question has been made out by the first defendant. Accordingly, the first defendant has a good Defence to the whole of the plaintiff's claim. 27 In these circumstances, it should not be necessary to proceed further with the hearing. If that be the case, there should be judgment for the first defendant on the plaintiff's claim and the plaintiff should pay the first defendant's costs of the claim. Exhibits may be returned. ********** Last Modified: 07/28/1999 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.