Supreme Court New South Wales Medium Neutral Citation: GE Commercial Corporation (Australia) Pty Ltd v Nichols as Trustee of Bankrupt Estate of Lymn [2012] NSWSC 562 Hearing dates: 13 April 2012 Decision date: 13 April 2012 Jurisdiction: Equity Division Before: Rein J Decision: Declarations and judgments for the plaintiff. Catchwords: GUARANTEE AND INDEMNITY - action against surety - specific performance of contract of guarantee - bankrupt surety - specific performance available if bankruptcy commenced after contract has been entered into and guarantee has been called on Legislation Cited: Contracts Review Act 1980 Cases Cited: Bridge Wholesale Acceptance Corporation (Aust) Ltd v Burnard (1992) 27 NSWLR 415 Re Bastable; Ex parte The Trustee [1901] 2 KB 518 Re Scheibler; Ex parte Holthausen (1874) LR9ChApp 722 Pearce v Bastable's Trustee in Bankruptcy [1901] 2 Ch 122 Texts Cited: G Jones and W Goodhart, Specific Performance, 2nd ed (1996) Category: Principal judgment Parties: GE Commercial Corporation (Australia) Pty Ltd (Plaintiff) Alan Richard Nichols as Trustee of Bankrupt Estate of Michael David Lymn (First defendant) Official Trustee in Bankruptcy as Trustee of Bankrupt Estate of Diane Roselyn Lymn (Second defendant) Representation: Counsel: A Bulley (Plaintiff) No appearance for the defendants Solicitors: DibbsBarker (Plaintiff) TressCox Lawyers (Second defendant) File Number(s): SC 2010/56086 EX TEMPORE Judgment 1In this matter, GE Commercial Corporation (Australia) Pty Ltd (the plaintiff) seeks relief in the nature of declarations and also judgments for a sum of money in respect of loans made to a company known as The Stable (Wagga) Pty Ltd ("The Stable") in respect of which there were guarantees given by Mr Michael David Lymn and Mrs Diane Roselyn Lymn. Mr and Mrs Lymn have both been made bankrupt and each has had a trustee appointed to their bankrupt estate. The plaintiff originally commenced proceedings against Mr and Mrs Lymn but has, following the bankruptcy, amended the statement of claim to replace Mr Lymn and Mrs Lymn by their respective trustees in bankruptcy, that is, Mr Alan Richard Nichols (first defendant) for Mr Lymn, and the Official Trustee in Bankruptcy ("Official Trustee") (second defendant) for Mrs Lymn. 2There is evidence, which I accept, that the trustees have both been served. So far as the Official Trustee is concerned, he has filed a submitting appearance. No appearance has been filed by Mr Nichols but there is evidence of service and, indeed, a response by letter from a solicitor acting for Mr Nichols. The matter was called this morning and there was no appearance by either defendant. In the case of the second defendant this is understandable given the submitting appearance. 3The plaintiff relies on evidence in the form of court books, being Exhibits A1 to A4 and there is a further exhibit, Exhibit B. I should indicate that the solicitor for the plaintiff, Mrs Jacinta Marie Watkins, has, apart from the affidavit of service sworn 8 March 2012, sworn a second affidavit dated 12 April 2012 in which she annexes a copy of the orders made by the Federal Magistrates Court on 6 February 2012 granting the plaintiff leave to proceed against the trustees in bankruptcy of the two estates. 4The evidence discloses that the plaintiff provided tractors and ride-on lawn mowers to The Stable over a long period of time and that in 2009 fresh documentation was executed by the company through its officers and also fresh guarantees given by Mr and Mrs Lymn. 5It was a term of the guarantee (see cl 7.1) that the guarantor would: "(a) ...pay to GE all amounts which are actually or contingently owing to GE now or in the future, by any person specified in the Particulars as guarantor; and (b) ...grant to GE a legal mortgage in registrable form (containing such terms and conditions as GE may require) of any land held by the guarantor now or in the future, which mortgage must contain a covenant to the effect of clause 7.1(a) and which secures the amounts referred to in clause 7.1(a)." 6The guarantee, described as a secured guarantee, and found at pp226 to 228 of Exhibit A1 and at pp32 to 34 of Exhibit B, specified the guarantors as Mr Lymn and Mrs Lymn respectively and also provided by cl 1 that: "The guarantor unconditionally and irrevocably guarantees to GE that the debtor will pay to GE all amounts payable by the debtor to GE and the due and punctual performance by the debtor of all its obligations to GE under the commercial transactions." 7There is evidence contained in Mr Garry Bruce Antill's affidavit, sworn 11 April 2012, of the current debt of The Stable, which is as at 11 April 2012 $475,054.48, which is the principal amount, plus interest of $61,428.45 and a further amount for costs of $267,599.39 (see cl 15.3 of the bailment agreement at p222 of Exhibit A1), leading to a total of $804,082.32. 8I should note that the liability of the guarantors was triggered by the dishonour of a cheque for approximately $57,000 by The Stable. The relevant clause of the bailment agreement is cl 14.1(a) at p221 of Exhibit A1. 9I am satisfied that, firstly, The Stable breached the bailment agreement and that the guarantors became liable under it. I should note that a defence was filed by Mr Lymn to the claims of the plaintiff and, indeed, a cross claim was filed. Mr Lymn's defence and cross claim asserted non est factum, rights under the Contracts Review Act 1980 and also unconscionable conduct and matters of that kind. Given the fact that the trustee in bankruptcy for Mr Lymn has not chosen to maintain or propound these claims, I do not think it is necessary to give further consideration to them. There was also an asserted revocation of the guarantee in the defence of Mr Lymn but there is no evidence of that and, again, I do not think it is necessary to give that further consideration. 10The only question which arises is whether or not specific performance of the agreement to give a legal mortgage is available in circumstances such as these, that is, where, after the contract of guarantee has been entered into, and indeed, after the trigger for the calling on the guarantee and indemnity has occurred, the parties, who have contracted to provide a legal mortgage if called on to do so, have been made bankrupt. 11The plaintiff relies on the decision of the Court of Appeal in Bridge Wholesale Acceptance Corporation (Aust) Ltd v Burnard (1992) 27 NSWLR 415 ("Burnard"), which dealt with a leasing agreement where the lessor, in not dissimilar circumstances to the present, sought orders of a similar kind against a bankrupt. The trial judge had refused relief of the type sought and the Court of Appeal held that the trial judge's decision should be set aside and the proceedings remitted to the Equity Division so that precise terms on which the matter would be resolved could be determined. 12In Burnard, there were agreements by the Official Trustee in relation to the conduct of the case and the Court of Appeal does not actually deal with the terms of orders, but I think it is clear from the decision that the Court saw no impediment to an order being made in circumstances where a person had become bankrupt subsequent to having covenanted to provide a legal mortgage and the creditor having become entitled to call for the mortgage. 13It is probably not necessary to go further than Burnard in the circumstances, but I would mention that this situation has some similarity, although not precisely, with the topic discussed in G Jones and W Goodhart, Specific Performance, 2nd ed (1996) at p221 where the learned authors pointed out that: "The trustee in bankruptcy of a vendor cannot, however, disclaim the contract if the equitable interest in the property sold has already passed to the purchaser, and in such a case the trustee can be ordered to complete the sale upon receipt of the purchase money." Three decisions are cited in the footnotes to the text: Re Scheibler; Ex parte Holthausen (1874) LR9ChApp 722; Re Bastable; Ex parte The Trustee [1901] 2 KB 518; and Pearce v Bastable's Trustee in Bankruptcy [1901] 2 Ch 122. 14To render the equitable mortgage analogous to the interest that passes when a contract for sale of a property is entered into, it may be necessary for a condition subsequent to be fulfilled, namely, default under the hire agreement, but that has been established here. 15I am satisfied that the orders should be made subject only to one thing, which is the question of how they should be framed vis-à-vis the trustees in bankruptcy in whom the property of the bankrupts has now vested. Given the fact that there is apparently a difficulty in the land titles office (Land and Property Information) dealing with mortgages that are not signed by the person registered on the certificate of title as owner, I think there is some utility in having the orders amended slightly, that is, to give an opportunity to the trustees to either execute the documents themselves or to have Mr and Mrs Lymn execute the mortgages, if the trustees are able to have them to do so. ********** 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: 25 May 2012