Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Benchmark (Aust) Pty Limited & Anor v National Australia Bank Limited [2012] NSWCA 130 Hearing dates: 23 April 2012 Decision date: 09 May 2012 Before: Barrett JA at [1] Sackville AJA at [2] Decision: 1. Application for leave to appeal is dismissed. 2. The applicants to pay the respondent's costs of the application for leave to appeal. [Note: The Uniform Civil Procedure Rules 2005 provide (Rule 36.11) that unless the Court otherwise orders, a judgment or order is taken to be entered when it is recorded in the Court's computerised court record system. Setting aside and variation of judgments or orders is dealt with by Rules 36.15, 36.16, 36.17 and 36.18. Parties should in particular note the time limit of fourteen days in Rule 36.16.] Catchwords: PRACTICE AND PROCEDURE - application for leave to appeal against summary judgment - applicant's defence found to be groundless by primary Judge - no error demonstrated - application dismissed CONTRACTS - construction and interpretation - whether original guarantee supplanted by later guarantee - subjective understanding of one party not relevant - post-contractual conduct not relevant - meaning to be construed objectively Legislation Cited: Corporations Law Supreme Court Act 1970 Cases Cited: Agricultural & Rural Finance Ltd v Gardiner [2008] HCA 57; 238 CLR 570 General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125 Mahoney v McManus [1981] HCA 54; 180 CLR 370 Spencer v Commonwealth [2010] HCA 28; 241 CLR 118 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165 Category: Principal judgment Parties: Benchmark (Aust) Pty Limited (First Applicant) Michael Angel Sanchez (Second Applicant) National Australia Bank Limited (Respondent) Representation: Counsel: S J Burchett with S Alexandre-Hughes (Applicants) J Hynes (Respondent) Solicitors: Levitt Robinson Solicitors (Applicants) TurksLegal (Respondent) File Number(s): 2012/42147 Decision under appeal Citation: National Australia Bank Ltd v Benchmark (Aust) Pty Ltd [2011] NSWSC 1464 Date of Decision: 2011-11-30 00:00:00 Before: McCallum J File Number(s): SC 2010/27037 Judgment 1BARRETT JA: I agree with Sackville AJA. 2SACKVILLE AJA: This is an application for leave to appeal from a decision of a Judge of the Supreme Court (McCallum J) granting the respondent ("NAB") summary judgment against each of the applicants, Benchmark (Aust) Pty Ltd ("Benchmark") and Michael Sanchez: National Australia Bank Ltd v Benchmark (Aust) Pty Ltd [2011] NSWSC 1464. The applicants accept that they require leave because her Honour's judgment was interlocutory for the purposes of s 101(2)(c) of the Supreme Court Act 1970. 3Her Honour held that the applicants had failed to demonstrate that they had an arguable defence to NAB's claims, which was founded on a guarantee executed by the applicants in favour of NAB on 15 August 2007 ("2007 Guarantee"). Since there was no dispute as to the amount due under the guarantee (if it was enforceable), her Honour entered judgment against the applicants in the sum of $6,589,177.42. 4In their written submissions, the applicants complain that the primary Judge erred in failing to apply the test for entering summary judgment laid down in General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; 112 CLR 125. In that case, Barwick CJ stated (at 129) that the authorities: "uniformly adhere to the view that the plaintiff ought not to be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a cause of action - if that be the ground on which the court is invited, as in this case, to exercise its powers of summary dismissal - is clearly demonstrated. The test to be applied has been variously expressed; 'so obviously untenable that it cannot possibly succeed'; 'manifestly groundless'; 'so manifestly faulty that it does not admit of argument'; 'discloses a case which the Court is satisfied cannot succeed'; 'under no possibility can there be a good cause of action'; 'be manifest that to allow them' (the pleadings) 'to stand would involve useless expense.'" In Spencer v Commonwealth [2010] HCA 28; 241 CLR 118, at 140 [55], the plurality (Hayne, Crennan, Kiefel and Bell JJ) interpreted the various formulations referred to by Barwick CJ as: "in the end amount[ing] to different ways of saying 'that the case of the plaintiff is so clearly untenable that it cannot possibly succeed'." (Emphasis in original.) See also at 132 [24], per French CJ and Gummow J. 5According to the applicants, the primary Judge should have concluded that there was a real question to be tried, in the sense that the applicants' defence to NAB's claim against them was not so obviously untenable that it could not succeed. It was contended that this error justified a grant of leave to appeal. 6In his oral submissions, Mr Burchett, who appeared for the applicants, submitted that her Honour erred in failing to take account of the applicants' pleaded case. According to Mr Burchett, her Honour approached the application for summary judgment on the basis that the applicants relied on only one defence, namely that a separate guarantee given by the applicants to NAB in 2008 ("2008 Guarantee") had supplanted and discharged the 2007 Guarantee on which NAB relied on its summary judgment application. According to Mr Burchett, the primary Judge overlooked other defences pleaded by the applicants. Background 7The background set out below is largely taken from the primary judgment. 8On 15 August 2007, NAB provided a bill facility to Lauderdale Project Pty Ltd ("Lauderdale"), pursuant to which NAB advanced $5.4 million. The letter of offer to Lauderdale specified that NAB required security for the facility in the form of registered mortgages over two properties, together with an indemnity and guarantee for $5.4 million from Benchmark, Michael Sanchez, Christian Sanchez and Landon Hodgkinson. Each of the three individuals was a director of Lauderdale. 9On 15 August 2007, the guarantee and indemnity was executed by the three individuals and Benchmark. The guarantee was limited to $5.4 million, plus specified charges such as interest, fees and costs. 10The primary obligation of the guarantors was set out in cl 6.2, as follows: "You guarantee that the customer will pay NAB all the amounts which the customer owes NAB at any time. If the customer does not pay an amount when due, you agree to pay that amount to NAB when NAB demands it. NAB may demand from you separately different amounts which the customer fails to pay". 11The "customer" was Lauderdale. "You" was defined to mean: "the person/s named in the Details as guarantor, and if there are more than one, means each of them separately and every two or more of them jointly. It includes the lawful successors of you. Your has a corresponding meaning." 12Clause 20 of the 2007 Guarantee provided as follows: "Your liability is separate to all other security NAB holds Despite any rule of law or equity to the contrary: (a) this Guarantee is additional to every other security, guarantee, indemnity, right and remedy NAB holds now or later; and (b) this Guarantee and NAB's rights and remedies under it and any other security, guarantee, indemnity, right, remedy or instrument which NAB has at any time continue to exist separately and do not merge with or affect each other." 13Clause 25 of the 2007 Guarantee provided as follows: "25.1 NAB may exercise its rights, remedies and powers under this Guarantee in any way that NAB considers appropriate without giving you reasons. 25.2 If NAB does not exercise any of them at any given time, this does not mean that it has given them up, or that it cannot exercise them later. 25.3 NAB cannot be considered to have given up any of them, or any demand or notice given under them, because it has started negotiations or accepted any payment." 14On 5 November 2007, Christian Sanchez ceased to be a director of Lauderdale. 15On 20 August 2008, NAB granted to Lauderdale an overdraft facility for a further $200,000. The security required in respect of the overdraft facility included a guarantee and indemnity for $5.6 million from Benchmark, Landon Hodgkinson and Michael Sanchez. At that time, Landon Hodgkinson and Michael Sanchez were the directors of Lauderdale. 16On the same day, those three parties executed the second guarantee ("2008 Guarantee"). The 2008 Guarantee contained clauses in identical terms to cll 6.2 and 25. Clause 20 was also identical, except for the additional words bolded in the passage below: "Despite any rule of law or equity to the contrary: (a) this Guarantee is additional to every other security, guarantee, indemnity, right and remedy NAB holds (including from you) now or later; and (b) this guarantee and NAB's rights and remedies under it and any other security, guarantee, indemnity, right, remedy or instrument which HAB has at any time continue to exist separately and do not merge with or affect each other." 17In April 2009, NAB cancelled the overdraft facility and demanded its repayment. Lauderdale's failure to comply with that demand constituted default under the initial facility on the strength of which NAB demanded repayment of the $5.4 million in May 2009. That and other demands on Lauderdale were not met and in due course, in July 2009, NAB called on the 2008 Guarantee. The Proceedings 18NAB initially sued the applicants and Landon Hodgkinson on the 2008 Guarantee. The applicants filed a defence to NAB's claim, alleging that before the 2008 Guarantee was entered into, NAB had engaged in misleading or deceptive conduct or unconscionable behaviour, such that it was precluded from enforcing the Guarantee. 19Landon Hodgkinson became bankrupt and ultimately the claim against him was discontinued. 20On 24 March 2011, NAB filed a notice of motion seeking summary judgment against he applicants. The motion was listed for hearing on 6 June 2011 before Kirby J. By that time, NAB had filed a reply to the applicant's defences. 21Kirby J expressed the view that, on the then current state of the pleadings, it was not open to NAB to obtain summary judgment on the 2008 Guarantee. His Honour stood NAB's motion over to be heard with the substantive claim and granted leave to NAB to amend its statement of claim. 22NAB duly amended its statement of claim to plead a cause of action against the applicants based on the 2007 Guarantee. 23The proceedings were listed for a final hearing on 29 November 2011 before the primary Judge. At the commencement of the hearing, senior counsel for NAB (Mr Stoljar SC) informed her Honour that there was a difficulty because Michael Sanchez was unwell and was not available for cross-examination. The parties agreed that the final hearing of the claim under the 2008 Guarantee could not proceed. 24Mr Stoljar suggested to her Honour that the best course was to proceed with NAB's application for summary judgment on its claim under the 2007 Guarantee. He indicated that if summary judgment was granted, NAB would not proceed with its claim under the 2008 Guarantee. 25The following exchange then took place: "STOLJAR:... Can I just articulate what the case is on the 2007 guarantee, and to do that I could take your Honour to the statement of issues. There is no issue that the 2007 guarantee was given. The demands have been served and the demands haven't been paid. The only question is what we've articulated in 1, namely does that first 2007 guarantee continue to be effective as the [NAB] contends or as the [applicants] contend did it cease to have effect on or after 20 August 2009 when the second guarantee was entered into. Its common ground, as I understand it, that if my friend fails to persuade your Honour that the 2008 guarantee was a complete substitute and replaced the 2007 guarantee, then my friend accepts that the [applicants] are liable for the amount claimed under the 2007 guarantee. So the only issue is a narrow one of contract construction, namely whether the 2008 guarantee replaced the 2007 guarantee. So if your Honour were minded to deal with issue 1 in advance of and independently from the other issues in the proceedings, then we could deal that issue, as it were, could be dealt with and the other issues the factual questions, would not need to be resolved. HER HONOUR: Are you proposing a separate question or is that issue taken up by your notice of motion? STOLJAR: Yes, I was proposing a separate question but the alternative would be by way of summary judgment application. The notice of motion that your Honour will have was filed on 24 March 2011. ... HER HONOUR: You're really seeking summary judgment on only part of the statement of claim, seeking summary judgment on pars 16 to 24, is that right? STOLJAR: Yes, your Honour. It would be 16 to 24 and 38. HER HONOUR: Mr Klineberg [counsel for the applicants], is there any reason I shouldn't proceed in that way? KLINEBERG: No, but can I say a couple of matters [from] the [applicants'] point of view. The notice of motion was seek the relief in the original statement of claim. HER HONOUR: That's what Mr Stoljar just addressed but he was indicating if one read or amended order 1 in the motion as being [referable] to paragraphs 16 to 24 and 38 of the amended statement of claim, one way forward would be to move on that relief as amended. KLINEBERG: I couldn't object to that. I think it's a sensible approach. Perhaps that's all I need to say at this stage. HER HONOUR: I think that's probably the sensible way forward Mr Stoljar. If I were against you on that, we would have to go over to cross-examine the third defendant. STOLJAR: Yes, your Honour. I would not read all of my evidence on the summary judgment application. I really just need to put the main documents before your Honour. My friend may need to read some evidence but I wouldn't wish to cross-examine on the summary judgment. If your Honour is against me on the summary judgment we will then have to consider the position in respect to Mr Sanchez, the third defendant, and go from there but if your Honour is with me then that comes [moot]." 26Mr Stoljar proceeded to read affidavits in support of the "summary judgment application". Mr Klineberg, who then appeared for the present applicants, read an affidavit from Michael Sanchez in opposition to the application. However, he did not read that portion of the affidavit which recounted conversations with officers of NAB relating to a separate facility described as the "Camden Retail Facility". Primary Judgment 27The primary Judge specifically stated (at [10]) that the application was to be determined in accordance with the principles approved in Spencer v Commonwealth. Her Honour (at [11]) accepted that the relevant test requires certainty of outcome, but she held that the test had been satisfied and that NAB was entitled to summary judgment. 28The primary Judge considered (at [26]) that the question was simply one of construction of the two guarantees. In her view (at [37]) the plain language of cl 20 of the 2008 Guarantee recorded "in the clearest terms the agreement of the parties that it be provided in addition to the 2007 Guarantee". Since there was no dispute as to the amounts due if the 2007 Guarantee was enforceable (at [24]), there was no real question to be tried in respect of NAB's claim under the 2007 Guarantee. 29The primary Judge rejected three arguments advanced by the applicants. 30First, the applicants relied on conversations involving the directors of Lauderdale, in which it was contemplated that the 2008 Guarantee was in substitution for the 2007 Guarantee. There was no evidence that these conversations involved NAB or anyone acting on its behalf. Her Honour held (at [30]) that this evidence was irrelevant because it could only go to establishing the subjective intention of the applicants. 31Secondly, the applicants relied on the fact that the limit of the 2008 Guarantee comprehended the sum of both facilities (that is, the $5.4 million advanced under the 2007 Guarantee and the additional overdraft facility of $200,000). Her Honour accepted (at [32]) that this fact was: "capable of providing some indication pointing in favour of the [applicants'] contention that the later guarantee was intended to supplant the original guarantee." 32However, she concluded (at [36]) that this was but a "weak indicator" and that, while the two agreements "entailed a measure of duplication ... they were not inconsistent". The fact that the 2008 Guarantee encompassed the whole of the funds advanced could not outweigh the clear terms of the 2008 Guarantee. 33Thirdly, the applicants relied on NAB's conduct in commencing proceedings to enforce the 2008 Guarantee and in turning to the 2007 Guarantee only after defences were filed in the original proceedings. These matters could not assist the applicants, since post-contractual conduct cannot be used as an aid to the construction of the contract (at [34]). 34For these reasons, her Honour entered judgment against the applicants for the amount claimed by NAB. Reasoning 35Mr Burchett submitted that there was material before her Honour that should have made it apparent to her that the applicants' case did not rest solely on the contention that the 2007 Guarantee had been supplanted by the 2008 Guarantee. Mr Burchett relied on para 46 of the Second Further Amended Defence ("2nd FAD") filed on 27 June 2011 and paras 4 and 5 of the Statement of Issues prepared by the parties in advance of the hearing held on 29 November 2011. He contended that the matters identified in these paragraphs raised for consideration a defence by way of set off to NAB's claim under the 2007 Guarantee. 36Paragraph 46 of the 2nd FAD pleads that the applicants provided the 2008 Guarantee (not the 2007 Guarantee) in reliance on certain representations made by NAB in August 2008 in relation to a transaction referred to as the Camden Facility. Paragraph 46 further pleads that the applicants would not have entered into the 2008 Guarantee for a number of reasons, including the following: "the effect of Lauderdale being a guarantor of the Camden Facility and Lauderdale's assets being mortgaged or, otherwise, being provided, as security for the Camden Facility was to encumber the assets of Lauderdale and frustrate or, otherwise, limit the ability of Lauderdale to service its own loans to the Plaintiff namely, the First [2007] Facility and the Second [2008] Facility". 37The Statement of Issues, under the heading "2008 Guarantee", identifies the following issues for determination: "3. Whether the [applicants] are liable to [NAB] in the sum of $6,450,013.55 pursuant to the [2008] [G]uarantee ... together with interest on that sum from the date of 7 June 2011. 4. Whether [NAB] on or about 15 August 2008 made the following representations to [Michael Sanchez]: a. it would be advantageous to [NAB] if all the funds pursuant to the Camden Facility were drawn down; b. there were no restrictions as to how the Camden Facility Funds could be applied; and c. [Michael Sanchez] could apply funds from the Camden Facility which had not been used in connection with the [Camden] development ... to service the loan monies owed by Lauderdale to [NAB] pursuant to the overdraft facility and the bill facility. 5. In the event that issue 4 is resolved in favour of the [applicants]: a. whether by making such representations [NAB] on or about 15 August 2008 engaged in misleading, deceptive and, or alternatively, unconscionable conduct within the meaning of the Trade Practices Act 1974 (Cth); and, if so b. whether the [applicants] are entitled to the relief claimed in the [2nd FAD], namely: [NAB] is estopped from relying on the 2008 Guarantee; damages pursuant to section 82 and, or in the alternative, section 87 of the Trade Practices Act 1974 (Cth); set-off." 38It is difficult to understand, even assuming that the primary Judge was in some way bound to identify for herself the issues the applicants wished to raise on the summary judgment application, how she could have discerned from these paragraphs a defence relating to the validity of the 2007 Guarantee. On their face, the paragraphs were directed to denying the enforceability of the 2008 Guarantee. To that end, they relied on events post-dating the execution of the 2007 Guarantee. They simply do not plead or identify a defence to NAB's claim to enforce the 2007 Guarantee. 39In any event, the exchanges between the primary Judge and counsel, at the hearing on 29 November 2011, made it abundantly clear that the only defence the applicants wished to raise to the summary judgment application was that the 2007 Guarantee had been supplanted or discharged by the 2008 Guarantee. Mr Stoljar SC set out the position quite precisely. Then counsel for the applicants expressed his agreement that the issue should proceed on the basis that the question for determination was whether, as a matter of construction, the 2008 Guarantee was a complete substitute for and replaced the 2007 Guarantee. 40There can be no doubt that counsel for the applicants understood that the dealings in relation to the Camden Facility had nothing to do with NAB's summary judgment application, founded as it was on the 2007 Guarantee. This is demonstrated by counsel deciding not to read Michael Sanchez's affidavit insofar as it addressed the circumstances surrounding the Camden Facility. 41The primary Judge did not misapprehend the issues for determination on NAB's summary judgment application. Nor did her Honour misapprehend the applicants' defence to the summary judgment application. 42Nor, in my opinion, did the primary Judge fail to apply the correct standard for determining whether NAB had made out its application for summary judgment. Her Honour cited and clearly bore in mind the passages from Spencer v Commonwealth that set out the test to be applied. 43Mr Burchett relied on her Honour's observation that the monetary limit of the 2008 Guarantee, which comprehended the sums advanced under both facilities, was capable of providing some support for the applicants' construction of the 2008 Guarantee. That observation does not indicate that her Honour applied the wrong test. She formed the view that the overlap provided a "weak indicator" in the applicants' favour and could not detract from the clear words of cl 20 of the 2008 Guarantee. It is to be borne in mind that in General Steel, Barwick CJ stated (at 130) that that resolution of the legal issues on a summary judgment might involve extensive argument. All that the primary Judge was doing was to address the legal argument put to her. 44The real question on the present application is whether the applicants would suffer any injustice if leave to appeal were refused. That depends on whether they have any reasonable prospect of success on an appeal. In my opinion, they do not. 45The primary Judge was correct to reject the three arguments advanced by the applicants and which Mr Burchett repeated. 46The first argument was that the primary Judge was wrong to hold that the conversations preceding the execution of the 2008 Guarantee could not support for the applicants' construction of the 2008 Guarantee. As the primary Judge pointed out, the evidence went only to conversations between the directors of Lauderdale, or between the directors and a finance broker. Mr Burchett accepted that the broker was the agent of the applicants, not of NAB. He also accepted that there was no evidence of communications between the applicants or the broker and NAB. 47In these circumstances, the evidence, taken at its highest, amounted to no more than evidence of the subjective understanding of the applicants as to the effect of the 2008 Guarantee. It cannot assist in the construction of the 2008 Guarantee, a matter that is to be determined by reference to objective criteria: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52; 219 CLR 165, at 177-178 [35]-[36], per curiam. 48Secondly, contrary to the submission of Mr Burchett, the judgment of Gibbs CJ in Mahoney v McManus [1981] HCA 54; 180 CLR 370, does not support the proposition that the 2008 Guarantee supplanted the 2007 Guarantee. Mahoney v McManus involved two guarantees executed, respectively, in August 1973 and May 1974. Gibbs J (with whom Murphy and Aitkin JJ agreed) said this (at 379): "The guarantee of 16 May 1974 is expressed to be in respect of present as well as of future indebtedness. The parties to it guaranteed payment of the indebtedness which was the subject of the earlier guarantee, and of other indebtedness as well. If all the parties to both guarantees had been the same, it might have been easy to reach the conclusion that they intended, not that there should be two identical guarantees in respect of the same existing indebtedness, but that the latter guarantee was to be taken in substitution for, and to discharge, the former. But the position is different when the parties to the two guarantees are not the same. It is not inconsistent with the continued operation of a joint and several guarantee by A, B and C, that a joint and several guarantee should be taken from A, B and D in respect of the same indebtedness. There is no reason why the two guarantees should not both be effective, so that the creditor can avail himself of either or both, and so that any surety can obtain contribution against all the others. There was no expressed intention to discharge the appellant and Mundt from their joint and several liability under the guarantee of August 1973, and I can see no good reason for implying any such intention; on the contrary, there is every reason to assume that Chrysler would not have intended to discharge the appellant or Mundt, if the effect of so doing would have been to release the respondent from his liability. It is not unreasonable to assume that Chrysler wished to have the benefit of both guarantees. It was not in my opinion established that the guarantee of 16 May 1974 was accepted in substitution for that of 14 August 1973 or that it had the effect of discharging the appellant from his obligations under the earlier guarantee." 49In the present case, the parties to the 2008 Guarantee were not the same as the parties to the 2007 Guarantee. Christian Sanchez, who had executed the 2007 Guarantee, was not a party to the 2008 Guarantee, having resigned as a director of Lauderdale in the meantime. There is nothing in the terms of the 2008 Guarantee which suggests an intention to release the applicants, much less Christian Sanchez, from the 2007 Guarantee. On the contrary, the express terms of cl 20 of the 2008 Guarantee demonstrate a clear intention that the 2008 Guarantee was to be in addition to the 2007 Guarantee to which the applicants were parties. (There appears to have been no equivalent to cl 20 of the 2008 Guarantee in the May 1974 guarantee at issue in Mahoney v McManus: see at 379.) 50The fact that NAB initially relied on the 2008 Guarantee cannot assist the applicants. Quite apart from the difficulty that post-contractual conduct cannot be relied on in construction of the contract (Agricultural & Rural Finance Ltd v Gardiner [2008] HCA 57; 238 CLR 570, at [35], per Gummow, Hayne and Kiefel JJ, at [163], per Heydon J), reliance on the 2008 Guarantee did not constitute an admission that the 2007 Guarantee was not valid and enforceable. 51Mr Burchett argued rather faintly that cl 20 of the 2008 Guarantee did not have the effect attributed to it by the primary Judge. He submitted, as I understood him, that cl 20 was confined to the case where NAB "holds" an existing guarantee. Since the effect of the 2008 Guarantee (so he argued) was to extinguish the 2007 Guarantee, NAB did not "hold" an existing guarantee. 52This is a "bootstraps" argument. Whether NAB "holds" the 2007 Guarantee depends on the true construction of the 2008 Guarantee. That question of construction is not resolved by assuming the answer. The clear intention of cl 20 was the primary Judge held: to ensure that NAB remained entitled to enforce the 2007 Guarantee against the parties to it. 53I add one further point. If the applicants have a viable claim against NAB arising out of the circumstances in which the 2007 or 2008 Guarantee came to be executed or enforced, it may yet be open to them to pursue that claim. It is neither necessary nor appropriate to resolve that issue. But the grant of summary judgment to NAB in its claim against the applicants does not necessarily preclude the applicants from pursuing any claim for damages or other relief against NAB. Conclusion 54The application for leave to appeal should be dismissed, with costs. ********** 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. Decision last updated: 09 May 2012