New South Wales Court of Appeal CITATION: Barecall Pty Limited v David Hoban [2010] NSWCA 269 This decision has been amended. Please see the end of the judgment for a list of the amendments. HEARING DATE(S): 12 October 2010 JUDGMENT DATE: 12 October 2010 JUDGMENT OF: Allsop P at 1; Macfarlan JA at 25; Handley AJA at 26 EX TEMPORE JUDGMENT DATE: 12 October 2010 1. Dismiss the appeal, subject to the following orders. DECISION: 2. Dismiss the application made by the third respondent for the adducing of fresh evidence with no order as to costs. 3. Direct the parties, through the appellant, to file an additional Orange Book containing the costs judgment, costs orders, and all parties' submissions on the appeal on costs, within seven days or such other extended time as the Court identifies if application be made. 4. Stand over the making of an order for costs of the appeal and of costs below until resolution of the appeal on costs. CATCHWORDS: GUARANTEE AND INDEMNITY – enforceability – guarantee covenants in variation of lease – guarantees not signed by two of five guarantors - ESTOPPEL – estoppel by representation or convention – assurance that five personal guarantees would be executed – knowledge of solicitor that two guarantees not received imputed to client – no action taken by client with knowledge that assurance unfulfilled LEGISLATION CITED: Real Property Act 1900 CATEGORY: Principal judgment CASES CITED: Chan v Cresdon Pty Ltd [1989] HCA 63; 168 CLR 242 Barecall Pty Limited ACN 060 527 095 (Appellant) David Hoban (First Respondent) PARTIES: Deon Russell Harvey (Second Respondent) Anthony Rossi (Third Respondent) Radoslav Spadina (Fourth Respondent) Jason Lussick (Fifth Respondent) FILE NUMBER(S): CA 2006/257180 Mr D E Baran (Appellant) COUNSEL: Mr G Blank (First Respondent) Mr M Evans with Ms C Sclavos (Second, Third & Fifth Respondents) Schreuder Partners Lawyers (Appellant) Goodman Law (First Respondent) SOLICITORS: Lathams Lawyers (Second & Third Respondents) In Person (Fourth Respondent) Medcalf Grant Lawyers (Fifth Respondent) LOWER COURT JURISDICTION: Supreme Court - Equity Division LOWER COURT FILE NUMBER(S): 2006/3278 LOWER COURT JUDICIAL OFFICER: Ward J LOWER COURT DATE OF DECISION: 16 October 2009 LOWER COURT MEDIUM NEUTRAL CITATION: Barecall Pty Limited v Hobart [2009] NSWSC 1104 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL 2006/257180 ALLSOP P MACFARLAN JA HANDLEY AJA Tuesday 12 October 2010 BARECALL PTY LIMITED v DAVID HOBAN Judgment 1 ALLSOP P: This is an appeal from orders made by a judge of the Equity Division (Ward J) dismissing proceedings seeking to enforce guarantees of the debts of a company pursuant to various instruments of lease, sub-lease and variation of lease: Barecall Pty Ltd v Hoban [2009] NSWSC 1104. The argument today has been directed to a limited foundation of the appeal. A full understanding of the facts and the issues raised in the written submissions can be taken from the detailed, careful and lucid reasons of the learned primary judge and the Notice of Appeal. respectively. The Court is in a position to dispose of the arguments today in relation to the substance of the matter. That disposition will be based on, and is to be understood by reference to, the clear reasons of the learned primary judge which I do not propose to re-state by reference to the detailed facts beyond absolutely essential matters to found my conclusions. 2 The three documents concerned Real Property Act 1900 land at Manly in a building, part of which was owned by the plaintiff/appellant (to whom I will refer as "Barecall") and part of which was leased by Barecall. In 2001, there was a lease and sub-lease of land under which a company known as Aqualounge Manly Pty Ltd ("Aqualounge") leased and occupied the land for the carrying on of a nightclub, restaurant and cafe bar. In 2003, another floor of the building became available on the termination of use by another tenant. Aqualounge was allowed into possession of that additional floor on the basis that documentation varying the original lease would be entered for higher rent. Importantly, there were to be guarantees of the tenancy arrangements. The 2003 variation was of sufficient size and importance as to so vary the underlying obligations as to of itself release the guarantors from their original obligations unless in 2003 they undertook effectively to guarantee the lease as now varied. Thus the argument on appeal was directed to what happened in 2003 and afterwards. 3 In August 2003 a conversation took place between those acting for the lessor, Barecall, and persons connected with Aqualounge, Mr Spadina, Mr Rossi and Mr Harvey. The learned primary judge dealt with the question of formal appointment of directors but I propose to deal with the appeal on the basis that the conversation in August 2003 between Mr Oppedisano (on behalf of Barecall) and Messrs Spadina, Rossi and Harvey was directed in a commercial sense to the persons who were interested in Aqualounge's operations. On that occasion, Mr Oppedisano said to Mr Spadina, Mr Rossi and Mr Harvey: "I will let you have the first floor restaurant on the same terms as Keith Long (the former tenant), that is for the same rent and outgoings and you can have all the fittings and fixtures. I want personal guarantees from all the directors of Aqua Lounge. I am also concerned about the noise and if any tenant upstairs leaves then you will have to compensate me for that." 4 To these commercial requirements Mr Spadina, Mr Rossi and Mr Harvey said words to the effect: "That's fine, when can we get in?" 5 It was important for Mr Oppedisano to communicate that he wanted personal guarantees from those associated with Aqualounge. 6 In October of the same year Mr Tocchini, a solicitor from Manly, wrote to the solicitors then acting for Barecall. It is of some importance to understand for whom Mr Tocchini was acting. Therefore for present purposes I will set out the whole of the letter of one paragraph: "I am acting for the Aqualounge Manly and I have to hand your letter of the 3 rd of October 2003 addressed to Stewart Green Mijovich regarding the variation of lease. I don't have a copy of the original lease and I would be obliged if you would let me have a copy as it doesn't appear that it has been registered. I also wish to advise that Mr Ian Hardy has sold his shares in the company and that the persons who will guarantee the lease are in addition to David Hoban, they are Jason Lussick, Anthony Rossi, Radislav Spedina [sic] and Deon Russell Harvey. If you could let me have those details at your earliest convenience we will attend to getting this documents [sic] as I understand there is some immediacy in having this executed." 7 The above letter indicates that Mr Tocchini was acting for Aqualounge alone. 8 During his examination-in-chief when called by Barecall in its case he gave the following answers: "Q. I come please to 31 October 2003. At that time I think you were acting on behalf of Aqualounge Manly Pty Limited? A. Yes. Q. Were you also acting on behalf of Dave Hoban? A. Yes. Q. Did you act on behalf of Jason Lussick? A. Yes. Q. Did you act on behalf of Antonio Rossi? A. Yes. Q. Were you acting on behalf of Radoslav Spadina? A. Yes. Q. Were you acting on behalf of Deon Russell Harvey? A. Yes, in their capacity as directors of the company. … Q. I think you said that Mr Hoban and Mr Rossi were the two gentlemen who effectively gave you your instructions, so to speak? A. Yeah. Q. And they told you that they were authorised to give those instructions on behalf of these other gentlemen excluding Mr Hardy? A. Yes. Q. Was it on this basis that you wrote this letter on 31 October 2003? A. Yes. Q. Did Mr Hoban or Mr Rossi ever tell you that they never gave you instructions to write a letter along these lines, namely, naming guarantors who are Mr Hoban, Mr Rossi, Mr Lussick, Mr Spadina and Mr Harvey? A. No." 9 However, somewhat confusingly with this evidence, Mr Tocchini when cross-examined also said the following: "Q. That fax of 31 October is also where you advise who the guarantors would be? A. That's so. Q. At that stage, you were not acting for the guarantors as individuals? A. No." 10 Given that no oral or affidavit evidence was led by any of the defendants I am prepared to approach the appeal on the basis that as a matter of fact Mr Tocchini had material before him from which he could infer, and thus I can infer, that he had the authority of the persons he mentioned in that letter to send the letter. Even if it be the case that he was not strictly acting for them there is direct evidence that some of those persons indicated that was the position. Mr Tocchini's evidence that I have set out above was to the effect that he had authority. Nor do I think it important to deal with the matter on the limited basis of the Australian Securities and Investment Commission records as to who were directors of the company. However, the letter reveals that those persons "will guarantee the lease". In a commercial context such as this, in my view, that can have only one meaning, that those persons will execute a guarantee of the lease in some form. That was not contested by Mr Baran who appeared for Barecall. Here, there was no doubt about the form of the guarantee and the variation. What Mr Tocchini was saying was that these five gentlemen would execute guarantees of the varied lease. He was giving an assurance. 11 At this point, it is important to understand that Mr Oppedisano let Aqualounge into possession of the first floor after August. The precise time of that entry is not clear from this material but it would appear to have been from the primary judge's reasons some time in about late August or early September. 12 I am prepared to accept, as the learned primary judge did, that the acceptance by the three gentlemen in August of the requirement for personal guarantees and the content of the letter in October both induced Mr Oppedisano to permit his company to allow Aqualounge into possession to begin commencement of their commercial preparations, and to allow them to remain in possession and continue their commercial preparations. 13 In November 2003, Mr Tocchini wrote again to Barecall and Mr Oppedisano's solicitors stating the following: "Please find enclosed herewith photocopy of documents on their way to you today. In the time available it hasn't been possible to get all the signatures of all of the guarantors however the other two guarantors Deon Harvey and Jason Lussick will attend your office for the purposes of signing the guarantee portion. The lease has been executed by David Hoban, director, and Anthony Rossi, secretary on behalf of the company and we enclose herewith a cheque in payment of your fees and a cheque for $53,612.35 being the amount of money due to your client in rent as discussed between Mr Hoban and Liliana O'Toole last night." 14 That letter made clear to Mr Oppedisano, through his solicitor, that he did not have the signed guarantees from two parties. The sum of money accompanying the letter was adequate to bring Aqualounge into conformity with its commercial obligations up to that point of time. So, in November, the allowing of the company Aqualounge into possession and its obligations to pay the additional rent had been matched, as it were, by commercial performance of both parties and Mr Oppedisano, through his solicitor, was aware that he did not at that point have the fulfilment of the statement that had been made in August and October that he would receive in effect signed guarantees from all five men. 15 In Mr Oppedisano's affidavit of 6 February 2007, he said the following at paragraphs 94 and 95: "[94] If I had known that as at the end of November 2003 that each of the guarantors had not signed the Variation of Lease I would have demanded the immediate execution of the Variation of Lease by the guarantors. In the event that the [sic] all the guarantors had not signed the Variation of the Lease after that demand then I would have demanded possession of the first floor of the premises until such time as the Variation of Lease was executed by each of the guarantors and in the event that all the guarantors had not signed the Variation of Lease issued a notice requiring all the guarantors to sign the Variation of Lease and if necessary re-taken possession of the first floor until such time as all the guarantors had signed the Variation of Lease. [95] I did not become aware that all the guarantors had not executed the Variation of Lease until in or about June or July 2005 when I was advised by Barecall's solicitors that not all of the guarantors had signed the lease." 16 It is important to understand that it was not until mid 2005 that the commercial use of premises by Aqualounge effectively ceased because of its financial difficulties. What is plain from paragraphs 94 and 95 is that Mr Oppedisano had not been told by his solicitor that in November 2003 he did not have the signed guarantees from two of the five persons. 17 The statement in late October by Mr Tocchini was unfulfilled in November and remained unfulfilled. It was accepted in argument before us by Mr Baran and, with respect, the acceptance must be correct, that in circumstances such as these and in a commercial transaction such as this, one must equate Mr Oppedisano's position in respect of such a matter as receipt of signed guarantees with the knowledge of his solicitor. It was his solicitor who was responsible for communications concerning the guarantees. 18 The above body of evidence that is said to found an estoppel by representation and a conventional estoppel that all five defendants and respondents would guarantee the obligations of Aqualounge. In my view, the material is inadequate to found and support that estoppel on either foundation. The learned primary judge accepted that Barecall and Mr Oppedisano had relied on the representations. It is plain, however, that from November there was a failure to comply with the statement or assurance, or promise, that had been made in August in conversation and by Mr Tocchini by letter in October, and that Barecall continued its commercial engagement with Aqualounge with the knowledge imputed to it that it did not have from November the two signed guarantees. It did nothing about this. 19 In those circumstances, I do not accept that there is an estoppel founded upon the failure to provide what was said would be provided; the change of position that had occurred up to November being remedied, and from then on possession and use was maintained in the knowledge of the absence of the fulfilment of the assurance that had been given. 20 In any event even, if it be the case that the parties should be held to the assurance that they would guarantee, that is that they would execute guarantees, there is a fundamental difficulty for reasons explained by the learned primary judge which there is no need to repeat. The effect of the approach to sureties and their obligations and construction of them as reflected in the reasons in the High Court of Chan v Cresdon Pty Ltd [1989] HCA 63; 168 CLR 242 would indicate the fundamental problem with the guarantees even if they had been signed. They were not registered. The learned primary judge was correct to conclude that there was no effective guarantee in the form in which the guarantee took (of which there was no dispute in the light of the principles enunciated in Chan v Cresdon). 21 There are a number of other possible difficulties with the enforcement of the guarantees even on the basis of the holding of the five men to their assurance, but in the circumstances the above is sufficient to conclude that the appeal must fail. 22 The question of costs is also the subject of an appeal. The learned primary judge awarded indemnity costs in the light of offers of compromise that had been made. The parties have inadequately brought that material and the arguments in relation to it before the Court and I would order that the parties within seven days provide to the Court an additional Orange Book with relevant judgments and all relevant submissions and the matter will be heard on the papers. 23 There was an application made by the third respondent for additional evidence to be tendered before the Court of Appeal. Given the views to which I have come, I would dismiss that motion and make no order as to costs. 24 The orders that I would make would be to dismiss the appeal, dismiss the motion for fresh evidence, order that there be no order for costs in relation to the motion for fresh evidence and stand the matter over for making orders for costs below and on the appeal. 25 MACFARLAN JA: I agree with the President. 26 HANDLEY AJA: I also agree. 27 ALLSOP P: The orders of the Court are as follows: 1. Dismiss the appeal, subject to the following orders. 2. Dismiss the application made by the third respondent for the adducing of fresh evidence with no order as to costs. 3. Direct the parties, through the appellant, to file an additional Orange Book containing the costs judgment, costs orders, and all parties' submissions on the appeal on costs, within seven days or such other extended time as the Court identifies if application be made. 4. Stand over the making of an order for costs of appeal and of costs below until resolution of the appeal on costs. ********** 20/10/2010 - Typographical error - Paragraph(s) Coversheet & para 20 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. 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