New South Wales Supreme Court CITATION : Kingsway Group Limited v Diddy Boy Pty Limited & Anor [2009] NSWSC 1425 HEARING DATE(S) : 26-27 February 2009 JUDGMENT DATE : 5 March 2009 JUDGMENT OF : Fullerton J DECISION : 1. Judgment for the plaintiff against the defendants for $2,633,989.55. 2. Defendants to pay the plaintiff's costs of the proceedings. CATCHWORDS : PROCEDURE - order sought pursuant to Rule 13.1 of the UCPR or, in the alternative, Rule 14.28 of the UCPR LEGISLATION CITED : Uniform Civil Procedure Rules General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 CASES CITED : Gordon v Macgregor (1909) 8 CLR 316 State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 Kingsway Group Limited (Plaintiff) PARTIES : Diddy Boy Pty Limited (1st Defendant) David Charles Hawkins (2nd Defendant) FILE NUMBER(S) : SC 2008/12721 COUNSEL : H Altan (Plaintiff) SOLICITORS : Willis & Bowring (Plaintiff) D Hawkins (In person) IN THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION FULLERTON J 5 MARCH 2009 2008/12721 KINGSWAY GROUP LIMITED v DIDDY BOY PTY LIMITED & ANOR JUDGMENT 1 HER HONOUR: By notice of motion dated 17 December 2008 the plaintiff seeks an order for summary judgment in accordance with Rule 13.1 of the Uniform Civil Procedure Rules (UCPR). In the alternative the plaintiff seeks an order pursuant to Rule 14.28 of the UCPR striking out the defence filed on behalf of the first and second defendants on 2 September 2008. 2 On 27 February 2009 I granted the plaintiff the relief under Rule 13.1 and granted leave for judgment in the amount of $2,633,989.55 to be entered forthwith. I ordered the defendants to pay the plaintiff's costs of the proceedings. I indicated on that date that I would publish reasons for my decision. This judgment constitutes those reasons. A history of the proceedings 3 The substantive proceedings were commenced by statement of claim dated 6 June 2008 alleging default by the first defendant under a loan agreement dated 20 October 2006 by reason of its failure to repay monies advanced by the plaintiff by the due date, namely 20 October 2007, and by reason of its failure to make an interest payment on 19 November 2007. The second defendant (the director and authorised officer of the first defendant) is alleged to be liable to the plaintiff as guarantor under a Deed of Guarantee and Indemnity also dated 20 October 2006. 4 On 2 September 2008 the first and second defendants filed a defence to the statement of claim. I note that it was prepared by solicitors and verified by the second defendant. In essence, the first defendant admitted that it entered the loan agreement under which it was obliged to repay any unpaid principal by October 2007, that it was required to pay interest in advance on the first day of each month and that it failed to pay the amounts alleged by the plaintiff to be outstanding under the loan agreement. The second defendant admitted that the first defendant entered into the loan agreement at his request, that he guaranteed the first defendant's obligations under the loan agreement and agreed to indemnify the plaintiff in respect of any amounts outstanding under the loan agreement. Despite the fact that the defendants denied the plaintiff's entitlement to recover the amount claimed, the defence as particularised sought merely to dispute that amount by reference to the method of calculation. 5 On 18 November 2008 the plaintiff's solicitors wrote to the defendants' solicitors attaching a full reconciliation of the loan account and two Certificates of Indebtedness issued in accordance with both the loan agreement and the Deed of Guarantee and Indemnity. Under the loan agreement, absent manifest error, the state of indebtedness specified in the certificate was conclusive and binding and, under the Deed of Guarantee and Indemnity, it was prima facie evidence of the amount owing under the loan agreement. The plaintiff's solicitors advised that in their view the defence as filed was no answer to the plaintiff's claim and that they were entitled to move the Court for summary judgment. They invited the defendants to withdraw the defence and to consent to judgment being entered in the plaintiff's favour to avoid an adverse costs order. They also foreshadowed the filing of a notice of motion seeking summary judgment in the event that they received no response within seven days. 6 On 19 November 2008 the second defendant advised the plaintiff that he had withdrawn instructions from the solicitors retained to act on his behalf and that of the first defendant. He did not otherwise respond to the matters raised in the correspondence. 7 The plaintiff filed the notice of motion seeking summary relief on 17 December 2008. The hearing of the motion has been adjourned on a number of occasions since that time. It was most recently before the court on 19 February 2009 on which date Mr Drew of counsel appeared, instructed by Levitt Robinson Solicitors, when an application was made for a further adjournment to enable the filing of an amended defence on the basis that solicitors had been recently retained and, in the view of Mr D'Arcy, solicitor, a defence by way of estoppel might be sustainable. On that occasion Grove J granted leave to file an amended defence within 14 days and adjourned the hearing of the notice of motion to 26 February 2009. 8 On 25 February 2009 an amended defence was received in the registry for filing, again verified by the second defendant, together with a supporting affidavit sworn by him. 9 On 26 February 2009 Mr Drew appeared and formally advised that on 20 February 2009, the day after Grove J granted the adjournment, the solicitors who had instructed him on that occasion had their retainer to act in the proceedings terminated by the second defendant on his own behalf and as authorised representative of the first defendant. The solicitors informed the Registrar by letter dated 24 February 2009 of that fact and advised that counsel would appear on the date listed for the hearing of the notice of motion to seek leave to withdraw. I granted leave and thereafter the second defendant appeared on his own behalf and on behalf of the first defendant. The amended defence 10 Having regard to the operation of Rule 12.6(2) and (3) of the UCPR the plaintiff submitted that the defendants should be refused leave to rely upon those paragraphs of the amended defence which had the effect of withdrawing admissions made in the verified defence filed in September 2008 (to which reference has already been made) so as to put in issue, for the first time since the commencement of proceedings, the fact that the monies were advanced pursuant to the loan agreement as pleaded, the fact that the first defendant failed to pay amounts due and payable under that loan agreement and the fact that the Deed of Guarantee and Indemnity renders the second defendant liable for the first defendant's default. In summary, under the amended defence the defendants now seek to advance the argument that prior to entering the loan agreement the plaintiff, through its officers, orally represented that in addition to the sum advanced under the written loan agreement it would make further funds available within the term of the loan (and apparently on the same terms and conditions), and that since those additional funds were not made available as promised the plaintiff ought not be permitted to recover the monies that have been advanced until the further advance is made. The defendants also complain that they have suffered loss and damage consequent upon the sale of the mortgaged property by the plaintiff and that this should be set off against the amount claimed by the plaintiff. 11 The plaintiff submitted that in the absence of any explanation as might explain the dramatic change in the defendants' stated position, leave so as to permit the defendants to rely on the amended statement of claim where it is in direct conflict with admissions earlier made should be refused. That said, and despite the fact that the amended defence and supporting affidavit were only served on the plaintiff on the morning of the date fixed for the hearing of the notice of motion, the plaintiff did not seek an adjournment. In making patent the plaintiff's position, Mr Altan of counsel informed me that the first defendant is currently the subject of proceedings in the Federal Court for the appointment of a liquidator (in fact the proceedings were before the Federal Court on the date the motion was heard) and, in those circumstances, that it was desirous of having the proceedings in this Court resolved without delay. 12 In the interests of ensuring the disposition of the matters in issue between the parties on the pleadings at this time, I resolved to grant leave under Rule 12.6 of the UCPR to permit the defendants to rely upon the amended defence despite the fact that it raised an entirely fresh basis to resist the relief sought by the plaintiff. It was conceded by the defendants that if after a review of all the evidence, in particular as it bears relevantly upon the circumstances in which the written loan agreement was entered into and its terms, I am not satisfied that the matters raised in the amended defence are supported by the evidence to a prima facie standard, then it was open to me to be satisfied that no reasonable defence is disclosed such as would otherwise warrant the defence being tested on the merits. The evidence 13 The second defendant's affidavit, filed in support of the amended defence, deposed to his belief and understanding as to what was comprehended by the loan agreement and, in particular, that it was his understanding that the plaintiff would provide finance in two parts: an initial advance to enable settlement of the purchase of a property at 16 Gasworks Road, Waverton ("the property") and a further advance for its refurbishment. He said that he would not have entered into the agreement on behalf of the first defendant had he known that the plaintiff would retract its offer of additional finance and, although he does not expressly say so, that he would not have executed the Deed of Guarantee and Indemnity on his own behalf. He did not depose to any conversation with the officers of the plaintiff or the mortgage broker where these matters were discussed such as might permit an assessment of extrinsic material to be made in the context of the written contract (see State Rail Authority of New South Wales v Heath Outdoor Pty Ltd (1986) 7 NSWLR 170 at 191). In this case, however, having regard to the express terms of the written contract, the parol evidence rule would be invoked to render inadmissible any prior arrangements or agreements (see Gordon v Macgregor (1909) 8 CLR 316 at 319-20, 322-3). The relevant clause of the loan provides as follows: "17. ACKNOWLEDGEMENT BY BORROWER The Borrower acknowledges that: (1) it has not entered into this Loan Agreement or the Facility in reliance on, or as a result of, any statement or conduct of any kind of or on behalf of the Lender, or any mortgage manager or custodian in respect of the Loan Agreement or the Securities or from any of its or their related bodies corporate (as defined in the Corporations Act) (including, without limitation, any advice, warranty, representation or undertaking); and (2) neither the Lender nor any mortgage manager nor any custodian (nor any body corporate related or deemed to be related to any of them) is obliged to do anything (including, without limitation, disclose anything or give advice), except as expressly set out in this Loan Agreement." 14 Moreover, the second defendant did not suggest that his understanding or belief was reflected in the settled terms of the loan agreement or any other document. On any view of the written agreement this was not the case. The plaintiff objected to those paragraphs of his affidavit on the grounds of relevance and as to form. I upheld the objection. 15 The balance of the affidavit referred to and annexed correspondence passing between the parties by email and letter. For reasons I will come to presently, rather than this correspondence supporting the case the defendants seek to advance, it supports the case the plaintiff advances in support of summary judgment. 16 In support of the motion the plaintiff relied upon affidavit evidence from Dale Graham and Peter Hatheier, both Business Development Managers of Kingsway Group Limited. Mr Hatheier exhibited various documents to his affidavit which I am satisfied establish the following facts: a) On 13 October 2006 the plaintiff offered to provide finance to the first defendant in the amount of $2.2 M on specified terms. b) The purpose of the loan was "to assist with the purchase of the property situated at 16 Gasworks Road Waverton, New South Wales". c) The offer was accepted by the first defendant as borrower and the second defendant as guarantor. d) On 19 October 2006, after the property was valued, an amended offer issued on the same terms but with the sum advanced being $2.1 M. The amended offer was accepted by the first defendant as borrower and the second defendant as guarantor. e) On 20 October 2006 the loan agreement was executed, the particulars of which provide inter alia that the loan monies were advanced by the plaintiff for the stated purpose of assisting the first defendant to purchase the said property and that the funds were to be drawn down on what was described as "one draw down" on 20 October 2006. f) The expiry date for the loan was specified as 20 October 2007. g) By reference to the Mortgage Reconciliation prepared by the plaintiff's business development manager for the purpose of these proceedings I am satisfied that save for the an amount of $5926, representing part interest for the month of October, the advance was in fact fully drawn on 20 October 2006 coincident with the date of settlement. h) Interest was specified by reference to a higher rate and lower rate as defined (no issue turns upon these provisions). i) The loan agreement was secured by mortgage over the property. j) On 19 November 2007 the plaintiff gave the first defendant and second defendant written notice of default constituted by failure to repay the principal which fell due on 20 October 2007 and the interest and default fees. 17 It was common ground that the defendants intended to redevelop the purchased property so as to convert it from a restaurant to a private residence in accordance with an existing development approval issued by North Sydney Council, and that the property required considerable refurbishment in anticipation that it would be on-sold within the term of the loan. In addition, I note it was a term of the signed letter of offer referred to in (d) above that the first defendant provide the plaintiff with a copy of a construction certificate on or prior to 31 March 2007 confirming that the refurbishment had significantly commenced in accordance with the development application, doubtless in order that the plaintiff was kept informed of the progress of the development to give it some measure of comfort that the principal would be repaid on or by the due date. However, there is nothing in the evidence relied upon by the defendants or the plaintiff to support the proposition advanced by the defendants that the plaintiff had undertaken to finance those refurbishments. As I noted earlier, the evidence is to the contrary. Not only does the loan documentation make no reference at all to the plaintiff agreeing to advance further funds during the term of the loan, the correspondence to which I have referred earlier directly contradicts that position. What follows is a summary of the facts established by that evidence: a) On 11 May 2007 the second defendant wrote to Mr Hatheier and advised as to an amended timetable which he claimed "may take me slightly beyond the rollover date in October". He then claims to have spoken with the mortgage broker about a "requirement to increase the facility with a construction package". The timetable confirmed 30 October 2007 for completion of the refurbishment and 30 November 2007 as settlement of the sale. b) On 24 April 2007 the mortgage broker advised the plaintiff that the first defendant expected to complete the renovation works by the end of October but sought on his client's behalf an extension of the existing advance to fund the acquisition of a 13m marina to advance the marketing of the property for sale. c) On 27 June 2007 the mortgage broker sought funding in a further amount of $850,000 to permit continuation of demolition works on an urgent basis. He also speaks of the second defendant's fortunes being reliably expected to change in what is described as "the foreseeable future" with the promise of joint venture finance from another project in the amount of $10 M. d) On 6 July 2007 the plaintiff advised that they would not be making available any additional funds. In particular they expressed concern about "moving forward into a construction facility on this project" unless and until the council had been paid and a construction certificate had issued. The plaintiff reminded the first defendant of its obligation to provide the plaintiff with a copy of a construction certificate on or prior to 31 March 2007 and reserved its rights in the following terms: "The borrower is to provide Kingsway on or prior to the 31 st March 2007 a copy of the Construction Certificate and confirmation from the Private Certifier or North Sydney Council that refurbishment works have been significantly commenced in accordance with the approved Development Application." e) On 16 August 2007 the second defendant responded confirming his intention to repay the advance on/before the due date and that any pre-emptive action would be met with an application for injunctive relief. 18 In the result, I am satisfied having regard to all the evidence, and to the requisite degree of certainty, that the absence of a defence is clearly demonstrated (see General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129). 19 In so far as the claim to a set-off is said to be a defence to the plaintiff's claim, I note that under clause 7.1 of the Deed of Guarantee and Indemnity that the second defendant is expressly prohibited from raising or claiming any set-off or counterclaim in reduction of the guarantor's liability under the deed until the guaranteed money is paid in full and all obligations of the borrower are fully and finally discharged or released. 20 In so far as the first defendant claims damage or loss upon the sale of the property by the plaintiff as mortgagee, its rights are reserved under the mortgage upon proof of fraud or reckless disregard for the interests of the mortgagor as provided for in clause 6.7. I also note an additional covenant in the following terms: "5. The mortgagee shall not be liable to the mortgagor for any damage to the Land, or any improvements to the Land, or to any chattels situated on the Land, whether or not the damage has been caused by the negligence of the mortgagee and/or agents of the mortgagee, even if that negligence be gross or wilful". 21 In conclusion, and for the above reasons, I confirm the orders made on 27 February 2009. ********** 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.