Court of Appeal Supreme Court New South Wales Medium Neutral Citation: Segboer & Anor v A J Richardson Properties Pty Limited & Anor [2012] NSWCA 253 Hearing dates: 28 June 2012 Decision date: 14 August 2012 Before: Allsop P at [1] Campbell JA at [2] Sackville AJA at [3] Decision: 1. Appeal dismissed. 2. The appellants pay the first respondent's costs of the appeal. 3. The appellants pay the second respondent's costs of the appeal and the cross appeal on an indemnity basis. 4. The cross-appeal otherwise dismissed. [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: BANKER AND CUSTOMER - bank guarantee - deed - whether guarantee "delivered" to beneficiary - whether physical delivery necessary - construction of guarantee - whether promise to pay contingent on return of original guarantee Legislation Cited: Corporations Act 2001 (Cth) Conveyancing Act 1919 Fair Trading Act 1987 Cases Cited: Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57, 238 CLR 570 Ansett Transport Industries (Operations) Pty Ltd v Comptroller of Stamps [1985] VR 70 Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25; 72 CLR 435 Beesly v Hallwood Estates Ltd [1961] Ch 105 Bowker v Burdekin (1843) 11 M & W 128, at 147; 152 ER 744 Doe d Garnons v Knight (1826) 5 B & C 671; 108 ER 250 Federal Commissioner of Taxation v Taylor [1929] HCA 13; 42 CLR 80 Fletcher v Fletcher (1844) 4 Hare 67; 67 ER 564 Hall v Bainbridge (1848) 12 QB 699; 116 ER 1032 Hall v Palmer (1844) 3 Hare 532; 67 ER 491 Hooker Industrial Developments Pty Ltd v Trustees of the Christian Brothers (1977) 2 NSWLR 109 Insurance Exchange of Australasia Group v Dooley [2000] NSWCA 159; 50 NSWLR 222. Macedo v Stroud [1922] 2 AC 330 Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310 Peel Valley Mushrooms Ltd v Corporate Investment Australia Funds Management Ltd [2000] NSWSC 958; 35 ACSR 535 Re Way's Trusts (1864) 2 De G J & S 365; 46 ER 416 Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263, 28 WAR 124 Stromdale & Ball Ltd v Burden [1952] Ch 223 Wood Hall Ltd v The Pipeline Authority [1979] HCA 21; 141 CLR 443 Xenos v Wickham (1867) LR 2 HL 296 Yu v Brownvalley Investments Pty Ltd [2010] NSWSC 253 Texts Cited: A J Bradbrook, "The Delivery of Deeds in Victoria" (1981) 55 ALJ 267 J W Carter, Carter's Breach of Contract (2011) R J A Morrison, H J Goolden, R F Norton, Norton on Deeds (2nd ed, 1928) Category: Principal judgment Parties: Robert Cornelus Wilhelm Segboer (First Appellant) Anne Janette Segboer (Second Appellant) A J Richardson Properties Pty Ltd (First Respondent) Bank of Western Australia Ltd (Second Respondent) Representation: Counsel: M Ashhurst SC; M Walsh (Appellants) T D F Hughes (First Respondent) A Leopold; E Finnane (Second Respondent) Solicitors: Snelgroves (Appellants) Sagacious Legal Pty Ltd (First Respondent) Gadens Lawyers (Second Respondent) File Number(s): 2009/335092- 005 Decision under appeal Date of Decision: 2011-07-08 00:00:00 Before: Charteris DCJ File Number(s): 2009/335092 Judgment 1ALLSOP P: I agree with Sackville AJA. 2CAMPBELL JA: I agree with Sackville AJA. 3SACKVILLE AJA: The first respondent ("the Developer") sued the second respondent ("the Bank") in the District Court on a guarantee in the sum of $375,000 issued by the Bank in favour of the Developer. The Bank cross-claimed against the appellants ("the Builders"), at whose request the guarantee was issued, seeking declarations that the Builders were required to indemnify the Bank against any amounts it was required to pay to the Developer. 4The Builders appeal against orders made by the primary Judge (Charteris DCJ) in favour of the Developer against the Bank. The Developer seeks to uphold those orders. The Bank has not made any submissions on the merits of the appeal. However, it has filed a cross-appeal in which it seeks a number of orders, but only in the event that the appeal succeeds. Those orders include restitution of the sum paid by the Bank to the Developer in satisfaction of the judgment of the District Court. The Orders Made by the Primary Judge 5The primary Judge identified the principal issues in dispute as follows: (i) whether the guarantee had been "delivered" to the Developer by the Bank, it being assumed at the hearing that "delivery" was required for the guarantee to be valid and enforceable against the Bank, and (ii) whether the Bank's "General Terms for Business Lending ("General Terms"), as a matter of construction, entitled the Bank to be indemnified by the Builders against the Bank's liability (if any) under the guarantee. 6His Honour found that the guarantee, one of two executed by the Bank at the same time, had been delivered notwithstanding that the Bank had retained the originals of both guarantees and had subsequently given the originals to the Builders. He concluded that the Bank's actions in forwarding faxed copies of the executed guarantees to the Developer's project manager, under cover of a letter stating that the originals would be forwarded in due course, amounted to delivery of the guarantees. 7The primary Judge rejected the appellants' argument that, as a matter of construction of the guarantee, the Developer could not call on the guarantee unless it had the original document in its possession. His Honour said (at 24) that the appellants' construction: "begs the question 'Why does the document not say such a thing? Indeed when the faxed copy is received one notes that term 6 says the beneficiary must return this (and I am highlighting the word 'this') document to the bank upon termination of the bank's obligations. The bank's obligations are not terminated until the money is paid. There is nothing in the terms that says the beneficiary of the guarantee must have the original document. In any event what was delivered was in effect, and in fact, the original document." 8The primary Judge upheld the Bank's claim to an indemnity against the Builders. He held that the General Terms required the Builders to indemnify the Bank against the latter's liability to the Developer under the guarantees. 9The primary judge gave judgment for the Developer against the Bank in the sum of $454,137.83 (inclusive of interest). The Bank was ordered to pay the Developer's costs on the ordinary basis until 28 May 2009 and on an indemnity basis thereafter. On the cross-claim, the Bank obtained judgment against the Builders in the sum of $454,137.83. The Builders were ordered to pay the full amount of the Bank's liability to the Developer in respect of costs. 10In addition, the following orders were made on the Bank's cross-claim: "5. The [Builders] pay the [Bank's] costs in respect of the [Developer's] claim and in respect of the cross-claim, such costs to be assessed on the indemnity basis. 6. The [Builders] shall pay interest on any amounts outstanding by the [Builders] to the [Bank] under this judgment, such interest to be calculated: (a) at the rate prescribed in accordance with UCPR r 36.7 or (b) at the Overdraft Reference Rate as published by the [Bank] from time to time PLUS 7% per annum whichever is the higher". The Appeal and Cross-Appeal 11There are some features of this case that should be noted. 12First, the appeal against the orders made against the Bank is not brought by the Bank, but by the Builders. The Developer accepts that the Builders have standing on appeal to challenge the order made in its favour against the Bank: Insurance Exchange of Australasia Group v Dooley [2000] NSWCA 159; 50 NSWLR 222. 13Secondly, as I have noted, although the Bank has not appealed, it has filed a cross-appeal in which it seeks an order for the restitution of the judgment sum that it has paid to the Developer, together with interest. However, it only seeks the order for restitution in the event that the Builders' appeal succeeds. 14If the appeal succeeds, the Bank seeks additional orders as follows: * the Developer pay not only the Bank's costs in the proceedings below, but the Bank's costs of its cross-claim against the Builders; and * the Builders, pursuant to the General Terms, pay the Bank's costs in the proceedings below in respect of both the claim against it and the cross-claim on an indemnity basis, to the extent that the Bank does not recover the costs from the Developer. * 15If the appeal fails, the Bank seeks an order that its costs of the appeal and cross-appeal be paid by the Builders on an indemnity basis and that there be interest on that sum in accordance with the General Terms. 16Thirdly, the primary Judge found that one of the Builders, the first appellant (Mr Segboer), made misrepresentations to the Bank in order to obtain the originals of the guarantees for his own financial advantage. Later in the judgment, his Honour said that Mr Segboer had "fraudulently misled" the Bank into handing over the originals of the guarantees and purporting to cancel them. 17Despite these findings, the Bank did not base its case against the Builders on contraventions of the Fair Trading Act 1987 or on the tort of deceit. Curiously enough, the Bank's cross-claim pleaded that the Builders had made representations to the Bank in order to induce it to cancel the guarantees, but sought relief against the Builders only on the basis of the Bank's contractual right to an indemnity. Thus no issue arises on the appeal concerning the legal consequences of Mr Segboer's fraudulent conduct. Facts 18The facts are not now in dispute. The following account is largely based on the primary judgment and the documentary evidence. 19On or about 20 February 2007, three agreements were executed: * a guaranteed Maximum Price Deed ("GMP Deed") whereby the Builders agreed with the Developer to construct a major addition to the Centrepoint Shopping Centre in Tamworth ("the Centre"); * a Design & Construction Contract ("DECON Contract"), between the Builders and the Developer; and * a Tripartite Deed, to which the parties were the Builders, the Developer and the National Australia Bank ("NAB"), the Developer's financier. 20The DECON Contract, as amended, required the Builders to provide a percentage of the "Contract Sum" as security for carrying out the Builders' obligations under the DECON Contract (cl 10.8). The Builders could satisfy the requirement by providing a bank guarantee (cl 10.9). The Developer's access to the contract security was to be "unconditional, on demand and without notice" (cl 10.12). 21The Tripartite Deed provided (cl 8.5(b)) that the "Builder" was not entitled (inter alia) to any payment under the GMP Deed unless: "the Builder has provided to [NAB] an unconditional, on-demand undertaking (in form and substance satisfactory to [NAB]) in the joint names of [NAB] and the [Developer] issued by a financial institution acceptable to [NAB] for an amount not less than 100% of any advance or payment [NAB] is requested to make to the [Developer] or the Builder in respect of the relevant Off-Site Materials to be supplied by the relevant subcontractor or supplier." 22Prior to these agreements being executed, the Bank had provided the Builders with an overdraft facility. In March 2007, Mr Segboer had a conversation with Mr Winnick, a Senior Relationship Manager with the Bank. The primary Judge said he was cautious about relying on the complete accuracy of Mr Winnick's recollection of the conversation. However, his Honour accepted that Mr Segboer asked the Bank for two guarantees to assist in the construction of the shopping centre. Each guarantee was to be in the sum of $375,000. Mr Segboer told Mr Winnick that, once the guarantees were approved and issued, they should be faxed to "Stephen Madden at Madden Associates, the project manager for the [Developer]". In fact, Mr Madden was the sole director of Madden and Associates Pty Ltd ("Madden Associates"), a company engaged by the Developer in 2005 to act as a quantity surveyor and project manager in connection with works at the Centre. 23Mr Winnick said that in this conversation Mr Segboer had told him that he (Mr Segboer) would come and collect the originals of the guarantees. The primary Judge referred to Mr Winnick's evidence on this point as a statement as to what Mr Segboer "allegedly said". His Honour made no specific finding as to whether Mr Segboer said the words attributed to him. However, his Honour accepted that Mr Winnick was doing his best to recall the conversations, although he did not accept that Mr Winnick's account accurately recorded "actual words which were spoken". 24On 15 March 2007, the Bank executed two very nearly identical guarantees, each in an amount not exceeding $375,000. The Bank's seal was affixed to each document, which was described as a "Bank Guarantee". The guarantees were expressed to be in favour of the "Beneficiary", defined to mean the Developer and NAB. The guarantees were stated to be provided by the Bank at the request of the Builders as "the Customer". 25The guarantee sued on contained the following terms: "1. In consideration of the Beneficiary, at the request of the Customer, agreeing to accept this guarantee in connection with the Customer's obligation to the Beneficiary pursuant to the Contract, the Bank, subject to the terms of this guarantee but otherwise unconditionally, undertakes to pay to the Beneficiary on demand any sum or sums from time to time demanded in writing by the Beneficiary to an amount not exceeding $375,000.00, less the aggregate of any amounts paid by the Bank to the Beneficiary under this guarantee ('guaranteed Sum'). 2. If demanded, payment of the guaranteed Sum will be made by the Bank to the Beneficiary without reference by the Bank to the Customer and notwithstanding any notice to the Bank by the Customer not to pay and irrespective of the performance or non-performance by the Customer or the Beneficiary of the terms of the Contract. 3. The Bank's liability shall not be affected or discharged in any way by any variation to the Contract or by an extension of time or other forbearance on the part of the Beneficiary or the Customer to the other. 4. This guarantee shall continue in force until either notification in writing has been received by the Bank from the Beneficiary that this guarantee is no longer required by the Beneficiary or until payment to the Beneficiary by the Bank of the whole of the guaranteed Sum or the first year anniversary of practical completion, whichever occurs first. 5. The Bank may at any time without being required to do so pay to the Beneficiary the guaranteed Sum and thereupon the Bank's liability under this guarantee shall immediately cease and determine. 6. The Beneficiary must return this document to the Bank upon termination of the Bank's obligations to [the Bank] at its nominated address. 7. The benefit of this guarantee is personal to the Beneficiary and is not capable of assignment." 26On the day the guarantees were executed (15 March 2007), Mr Winnick faxed copies of each guarantee to Mr Madden of Madden Associates, under cover of a letter written on the Bank's letterhead. The letter read as follows: "The Bank is in a position to be able to provide Bank guarantees to assist Robert Segboer in the construction of the Centrepoint shopping centre development. Please find enclosed those guarantees. The originals will be forwarded to you in due course. I trust this is sufficient. Let me know if you need anything further." 27Shortly after the guarantees had been executed and copies sent to Mr Madden, Mr Segboer went to the Tamworth branch of the Bank and asked for the original guarantees. Mr Winnick gave them to him. Mr Segboer never forwarded the original guarantees to Mr Madden or to the Developer. 28On 19 March 2007, Mr Winnick wrote to the Builders enclosing new Facility Terms, including the Bank's General Terms. The letter indicated that, upon the document being accepted by the Builders, it would replace any earlier agreement. 29The General Terms included the following provisions: "5.5 Indemnity As a separate obligation, you indemnify us against all actions, proceedings, claims and demands brought or made against us and against all losses, Costs and damages which we incur or sustain or for which we become liable, directly or indirectly, in connection with the issue of any Contingent instrument. ... 15.4 Continuing indemnities (a) Any indemnity of yours contained in a Facility Document is a continuing obligation, independent of your other obligations under that Facility Document and continues after the Facility Document ends. It is not necessary for us to incur expense or make payment before enforcing a right of indemnity under a Facility Document. ..." 30The General Terms defined "Costs" to mean "costs, charges and expenses and includes (a) legal costs (including internal legal costs) on whichever is the higher of a full indemnity basis or solicitor and own client basis; ..." 31On about 25 March 2008, Mr Segboer returned the original guarantees to Mr Winnick. At the time, he told Mr Winnick that the guarantees were to be cancelled as they were no longer needed. Mr Winnick made no inquiries of Mr Madden or of the Developer as to whether the representations made by Mr Segboer were correct. Nonetheless, he wrote "CANCELLED 25/3/08" on each of the guarantees. He then authorised the release to the Builders of securities that they had provided to the Bank to secure the guarantees. 32On 15 September 2008, Stage 1 of the project reached practical completion. Stage 2 reached practical completion on 14 November 2008. 33On 9 February 2009, a representative of the Developer telephoned Mr Winnick to inquire as to the whereabouts of the guarantees. Mr Winnick told the representative that they had been cancelled nearly a year earlier. 34The following day, Mr Madden forwarded by facsimile to Mr Richardson, a principal of the Developer, the copies of the bank guarantees (themselves copies) held in the files of Madden Associates. Mr Madden advised Mr Richardson that the originals of the guarantees may have been sent directly to the Developer's office. Mr Madden suggested that Mr Richardson speak with the Bank. 35In a subsequent conversation with Mr Richardson, apparently on the same day, Mr Winnick told Mr Richardson that the guarantees had been cancelled at Mr Segboer's request. When asked for an explanation as to why the Bank had not referred the matter to the Developer, the following exchange took place: "[Mr Winnick] It is normal procedure that the customer (here Segboer) requests a guarantee which is then typically sent to the customer. The bank does not normally send the guarantee to the favouree. After the guarantee is no longer required, the customer would normally send the guarantee back to the bank be cancelled. Mr Richardson: I would have thought that the favouree must provide confirmation in writing that the guarantee could be cancelled. [Mr Winnick] It is standard practice not to second-guess our customers. As we issued the guarantees in good faith, we cancelled them in good faith as well. When the original guarantees are returned to Bankwest, they are deemed not longer to be required by the favouree." 36On 13 March 2009, the Developer sent a letter to the Bank calling on one of the guarantees and requested payment of the sum of $375,000. The letter enclosed a copy of the guarantee and noted that the Bank held the original. It is common ground that at the time this letter was written, none of the matters identified in cl 4 of the guarantee as bringing it to an end had occurred. 37The Developer's letter did not elicit payment from the Bank and on 15 May 2009, the Developer commenced proceedings against the Bank in the District Court. The Bank filed both its defence and its cross-claim against the Builders on 17 June 2009. 38The hearing in the District Court took place over three days, from 18 to 20 May 2011. The parties filed written submissions after the hearing and the primary Judge delivered judgment on 8 July 2011. 39On 28 August 2011, the Bank paid the judgment sum of $454,137.83 to the Developer's solicitors. Appellant's Submissions 40The appellant advanced two principal submissions, one of which was put in the alternative. First, Mr Ashhurst SC, who appeared with Mr Walsh for the appellant, contended that if the guarantee was to be regarded as a deed, it was valid and enforceable only if it was "signed, sealed and delivered". Mr Ashhurst accepted that a deed could be "delivered" either by physical or by what he described as constructive delivery. However, if there was no physical delivery, the promisor's actions must demonstrate an intention to be bound immediately by the deed, without any further act occurring. He submitted that the guarantee had not been delivered by the Bank in the required sense. 41Mr Ashhurst did not dispute that the Bank's intention was to be assessed objectively. However, he submitted that the evidence pointed to the conclusion that the Bank did not intend to be bound immediately by the guarantee. In particular, he relied on the following: * copies of the guarantee were sent to Mr Madden, but there was no evidence that Mr Madden or Madden Associates was authorised to receive the copies on behalf of the respondents; * the covering letter of 15 March 2007 included the phrase "I trust this is sufficient", suggesting that the copy guarantee was sent to Mr Madden so that he could determine whether it complied with the contractual requirements; * the facsimile was not sent to NAB, one of the beneficiaries; * the covering letter stated that the originals would be forwarded in due course, but if the guarantees were to be binding immediately this statement was unnecessary; * Mr Winnick handed the original guarantees to Mr Segboer before they were called upon; and * The Bank's conduct after it had sent the facsimile suggested that it was not bound by the guarantee, in particular Mr Winnick's purported cancellation of the guarantee. 42In the alternative to the first contention, the appellant contended that, consistently with Mr Winnick's understanding, the Bank delivered the guarantees to the Builders, leaving the decision as to whether the guarantee would become binding dependent on the Builder's decision as to whether or not they would provide the original guarantees to the Developer. The dealings between the Bank and the Builders were said to have produced the consequence that any delivery of the guarantees was in escrow and the guarantees would not become effective until the condition (in this case, the Builder's decision to forward the original guarantees to the Developer) was fulfilled. 43Secondly, the appellant submitted that the primary Judge erred in construing the guarantee to mean that the Developer did not have to be in possession of the original guarantee executed by the Bank before being entitled to demand payment of the Guaranteed Sum from the Bank. Mr Ashhurst contended that the expression "this document' in cl 6 of the guarantee, contrary to the primary Judge's view, meant the original guarantee, not a mere facsimile copy. 44Mr Ashhurst also argued that the primary Judge was wrong to conclude that the guarantee did not require the Developer to take possession of the original guarantee before calling on the Bank to pay the Guaranteed Sum. Mr Ashhurst accepted that the guarantee contained no express provision to this effect. He submitted, however, that the guarantee should be construed in accordance with its "clear business purpose", namely that: "once the Bank Guarantee has been called upon (or for some other reason is terminated) then the means by which such a Bank Guarantee may be called upon is returned to the bank so that no subsequent call can be made on that particular bank guarantee." 45This construction of the guarantee, so Mr Ashhurst contended, was supported by the terms of cl 1. The consideration expressed there could only pass from the Developer to the Bank when the Developer accepted the guarantee. That could not occur without performance of the Developer's promise, which required it to receive the original guarantee. 46Mr Ashhurst advanced a third contention in oral submissions in this Court. I refer to that contention later (at [88**] below). Reasoning on the Appeal Form of the Guarantee 47As has been noted, the guarantee upon which the Developer sued was executed by the Bank affixing its seal to the document on 15 March 2007, by its duly constituted attorney, Mr Winnick. Mr Winnick signed the guarantee in that capacity. The affixation of the Bank's seal and Mr Winnick's signature were witnessed by an officer of the Bank (Mr Allomes). 48The form of guarantee therefore satisfied s 38(1) of the Conveyancing Act 1919, which provides that: "(1) Every deed, whether or not affecting property, shall be signed as well as sealed, and shall be attested by at least one witness not being a party to the deed; but no particular form of words shall be requisite for the attestation." See also Conveyancing Act, s 51A(3), relating to the execution of a deed by a corporation under a power of attorney; Corporations Act 2001, s 127(4). 49The guarantee is expressed to require the Bank to pay the "guaranteed Sum" upon demand by the "Beneficiary" (the Developer and NAB), without reference to the Builders and notwithstanding any notice by the Builders to the Bank not to pay and irrespective of the performance or non-performance by the Builders or the Developer of the contract relating to the development of the Centre (cl 2). There was no dispute that the effect of the guarantee, assuming it to have been validly issued, was to make the Bank's obligation to pay on the Developer's demand independent of the contractual rights and duties between the Developer and the Builders: Wood Hall Ltd v The Pipeline Authority [1979] HCA 21; 141 CLR 443, at 451, per Gibbs J (with whom Barwick CJ and Mason J agreed). 50In his concurring judgment in Wood Hall, Barwick CJ said (at 445) that it was a "misnomer" to describe the document in that case as a "guarantee", since it "had none of the elements of a suretyship". He preferred to characterise the document as "really in the nature of an unconditional bond to pay money on demand up to a stated amount". While the precise classification of the guarantee in the present case is not crucial, it is useful to bear in mind the commercial purpose of the Bank issuing such a document in favour of the promisee. Delivery 51The appellant's argument that the guarantee had not been delivered proceeded on the assumption that the guarantee was a deed. It is long established law that delivery is essential to a deed: R J A Morrison, H J Goolden, R F Norton, Norton on Deeds (2nd ed, 1928), at 10; Scook v Premier Building Solutions Pty Ltd [2003] WASCA 263, 28 WAR 124, at [23]-[24], per Steytler J (with whom McKechnie and Hasluck JJ agreed). 52It is common ground that delivery is required where a deed is executed, not only by an individual but by a corporation: see Hooker Industrial Developments Pty Ltd v Trustees of the Christian Brothers (1977) 2 NSWLR 109, at 118-119, per Helsham CJ in Eq: A J Bradbrook, "The Delivery of Deeds in Victoria" (1981) 55 ALJ 267, at 270-272. 53The requirement for delivery has its origins in the symbolic significance of a manual transfer of a document: A J Bradbrook, at 267. But for at least two centuries, the requirement of "delivery" has been capable of being satisfied without physical delivery or transfer of the deed to the promisee or anyone else. Norton on Deeds states (at 13) that: "Delivery may be effected by words alone, or without words by the acts or conduct of the party, from which it can be inferred that he intended to deliver the deed as an instrument binding on him." 54It is for this reason, that it held in Xenos v Wickham (1867) LR 2 HL 296, that a deed can be delivered even though it never leaves the possession of the party executing it: see at 323, per Lord Cranworth. Indeed, there is much older authority to that effect: see, for example, Doe d Garnons v Knight (1826) 5 B & C 671; 108 ER 250; Hall v Palmer (1844) 3 Hare 532; 67 ER 491; Fletcher v Fletcher (1844) 4 Hare 67; 67 ER 564; Re Way's Trusts (1864) 2 De G J & S 365; 46 ER 416. 55In Xenos v Wickham, Blackburn J (whose opinion was upheld by the House of Lords) stated (at 312) the principles as follows: "no particular technical form of words or acts is necessary to render an instrument the deed of the party sealing it. The mere affixing the seal does not render it a deed; but as soon as there are acts or words sufficient to shew that it is intended by the party to be executed as his deed presently binding on him, it is sufficient. The most apt and expressive mode of indicating such an intention is to hand it over, saying: 'I deliver this as my deed;' but any other words or acts that sufficiently shew that it was intended to be finally executed will do as well. And it is clear on the authorities, as well as the reason of the thing, that the deed is binding on the obligor before it comes into the custody of the obligee, nay, before he even knows of it ..." 56This passage was approved by the Privy Council in Macedo v Stroud [1922] 2 AC 330, at 337, per Viscount Haldane; see also Stromdale & Ball Ltd v Burden [1952] Ch 223, at 230, per Danckwerts J. Since no physical delivery of a deed is required, some caution should be exercised before using the expression "constructive delivery" in the present context: cf Peel Valley Mushrooms Ltd v Corporate Investment Australia Funds Management Ltd [2000] NSWSC 958; 35 ACSR 535, at 542 [22]-[25], per Santow J. 57Blackburn J stated in Xenos v Wickham that the mere affixation of the seal does not render a document a deed. But a document in the form of a deed which has been signed and sealed is presumed to have been delivered: Hall v Bainbridge (1848) 12 QB 699; 116 ER 1032. The presumption may be rebutted, for example where the circumstances show that the parties executing counterpart deeds did not intend to be bound until the deeds were exchanged: Hooker v Christian Brothers. 58The question in the present case is not (as the primary Judge seems to have thought) whether, on the evidence, the guarantees had been delivered to the Developer. Physical delivery is not required for a deed to be effective. The critical question is whether the party executing the deed has evinced an intention to be bound immediately. 59In Xenos v Wickham, it was said that the question of whether a party had evinced an intention to be bound by a deed was a question of fact for the jury: at 309, per Piggott B; Ansett Transport Industries (Operations) Pty Ltd v Comptroller of Stamps [1985] VR 70, at 78, per Tadgell J. Both parties in the present case accepted that the Bank's intention, for the purpose of determining whether the deed had been delivered, was to be ascertained objectively by reference to the words used by and conduct of the Bank and the facts attending the execution. This approach is consistent with the statements of principle in Norton on Deeds and in Xenos v Wickham, where Blackburn J emphasised the significance of the acts or words of the promisor: see also Ansett v Comptroller, at 79, citing Bowker v Burdekin (1843) 11 M & W 128, at 147; 152 ER 744, at 751, per Parke B: Monarch Petroleum NL v Citco Australia Petroleum Ltd [1986] WAR 310, at 355, per Kennedy J. 60Some reference was made in argument to Mr Winnick's subjective state of mind at the time the guarantees were executed and the copies sent to Mr Madden. The evidence as to Mr Winnick's state of mind at the time was inconclusive. In any event, his subjective opinions are not relevant to the question that must be addressed, namely whether the acts of the Bank or the statements made on its behalf demonstrate an intention that it should be immediately bound by the guarantees. 61With due respect to Mr Ashhurst's submissions, the acts and words of the Bank point overwhelmingly to an intention that the Bank should be immediately bound by the guarantee. The Bank executed the document with the appropriate formality, including the affixation of the seal in the presence of a witness. This may not have been enough, of itself, to constitute delivery, but the Bank sent the documents by facsimile to Mr Madden, as Mr Segboer had instructed. The Bank was told by Mr Segboer that Madden Associates was the project manager for the Developer. 62The Bank's covering letter to Mr Madden stated that it was in a position to be able to provide the bank guarantees to assist Mr Segboer in the construction of the Centre development. The letter did not say that the Bank would execute the guarantees at some future time or when some stated contingency was satisfied; it attached copies of the executed guarantees. Not only that, but the Bank stated that the originals of the guarantees "will be forwarded in due course". This was an unequivocal statement. The Bank gave no indication that the originals would be handed over to Mr Segboer if he so requested, nor did it suggest that the originals would be forwarded only if Mr Segboer gave his approval. The Bank clearly implied that there was no obstacle to forwarding the originals, thereby confirming to the Developer that the executed guarantees were intended to take immediate effect. Mr Winnick's expression of hope that "this is sufficient", if anything, reinforces the conclusion that the Bank considered that nothing more needed to be done in order for the guarantees to be binding according to their terms. 63I am inclined to doubt whether it matters whether Mr Madden or Madden Associates was specifically authorised by the Developer to receive the guarantees, or copies of the guarantees, on its behalf. Mr Segboer instructed the Bank, once the guarantees had been approved and issued, to send them by facsimile to Madden Associates, identified by Mr Segboer (correctly) as the Developer's project manager. The obvious inference is that this was the means by which the Bank was to communicate to the Developer and its financier (NAB) that the guarantees had been issued and were binding on the Bank. Even if Madden Associates was not specifically authorised by the Developer to receive the guarantees on its behalf, the Bank's action in forwarding the guarantees to the entity it had been instructed was the Developer's project manager objectively demonstrates that it was communicating its intention to be bound by the guarantees it had executed. 64In any event, as Mr Hughes correctly submitted on behalf of the Developer, there was ample evidence that Madden Associates was authorised to receive the guarantees issued by the Bank in favour of the Developer. Madden Associates, by letter dated 9 September 2005, offered to provide to the Developer a range of professional services required to manage the project. These included: * providing an overall project program identifying: "key activities and milestones and the critical dependencies necessary to meet the agreed project staged completion dates"; * reviewing and reporting on proposed contractual documents for compliance with the Developer's needs and to minimise the Developer's risks; * manage and co-ordinate "all programming requirements"; and * reviewing progress with contractors and subcontractors on "primary issues" such as financial matters. 65In addition, the standard conditions of engagement stated that the Developer authorised Madden Associates to act as the Developer's agent: "in regard to the project as set out or implied in this agreement and in the particular building contract adopted for the project, if applicable" (cl 4). 66If it was necessary to decide, I would conclude that Madden Associates was authorised by the Developer to receive the guarantees on its behalf. This conclusion is strengthened by the fact that on 10 February 2009, Mr Madden forwarded to the Developer the copy guarantees that had been held in Madden Associates' files since March 2007. The inference from this conduct is that Madden Associates was authorised to receive and hold the documents on the Developer's behalf until the Developer asked for them. 67Reference was made in argument to the judgment of Brereton J in Yu v Brownvalley Investments Pty Ltd [2010] NSWSC 253. In that case, his Honour without reference to the authorities on delivery of deeds, found that delivery of a bank guarantee to a favouree had not been authorised and that the favouree was therefore not entitled to enforce the guarantee. These findings did not affect the result of the case, since a replacement guarantee issued by the bank was held to be enforceable by the favouree. Brereton J's reasoning appears also to have been influenced by a finding that the party providing the first guarantee understood that if it retained possession of the original guarantee, the favouree could not redeem it. I do not think the case is of assistance on the issue of delivery in the present case. 68Mr Ashhurst submitted, in reliance on observations in Scook v Premier Building, at [25], that it is permissible, in ascertaining the promisor's intention, to take into account later events as well as circumstances prior to or contemporaneous with the alleged delivery of the deed. I assume, without deciding, that such events can be taken into account. 69The subsequent events relied on by Mr Ashhurst, if anything, strengthen the inference that the Bank intended to be bound by the guarantee no later than when the copy guarantees were sent to Madden Associates. After Mr Winnick received the original guarantees from Mr Segboer in March 2008, he wrote the word "CANCELLED" on them. He did this on the faith of Mr Segboer's false representation that the guarantees were no longer needed. By purporting to cancel the guarantees, Mr Winnick was recording that they were no longer operative. Nothing Mr Winnick did or said indicated that the guarantees had never been valid and effective. Thus in his conversation with Mr Richardson on 10 February 2009 (see at [35**] above), Mr Winnick asserted that the Bank cancelled the guarantees in good faith, just as it had issued them in good faith. The reason he gave for cancelling the guarantees was that, once the originals are returned, they "are deemed no longer to be required by the favouree". 70None of the other matters relied on by Mr Ashhurst led to any conclusion other than that the Bank intended to be bound by the guarantees once they were executed and copies sent by facsimile to the Developer's project manager. One such matter was said to be the fact that a copy of the guarantee was not sent to NAB, one of the promisees. As Mr Hughes, who appeared for the Developer, pointed out, there was no evidence as to whether or not the copy guarantee was sent to or received by NAB. However, on the assumption that NAB did not receive a copy, that fact does not indicate an intention by the Bank not to be immediately bound by the guarantee. Physical delivery of a deed to a promisee was never essential for the deed to be "delivered" in the relevant sense. In any event, the Bank forwarded the copy guarantees to the Developer's project manager. Since NAB was named as a promisee, and was known by the Bank to be the Developer's financier, an objective observer would reasonably conclude that the guarantees would come to the attention of NAB in due course. 71In my opinion, the primary Judge was correct to conclude, although not exactly for the reasons he gave, that the guarantees were delivered by the Bank no later than 15 March 2007 and thus were valid and effective according to their terms. Delivery in Escrow 72A deed can be delivered in escrow. The effect is that the deed is not recallable, but equally is not operative until a particular condition is satisfied: Beesly v Hallwood Estates Ltd [1961] Ch 105, at 118, per Harman LJ (with whom Lord Evershed MR agreed): Federal Commissioner of Taxation v Taylor [1929] HCA 13; 42 CLR 80, at 87-88, per Rich, Starke and Dixon JJ; Ansett v Comptroller of Stamps, at 79. Delivery of a deed in escrow is to be distinguished from a case where the grantor's intention is not to be bound at all until some future event occurs, in which case there is no delivery. An example is where a party to a conveyancy transaction executes a deed and returns it to his or her solicitor in the expectation that, in accordance with usual conveyancing practice, the deed will not be operative until exchange: Hooker v Christian Brothers, at 118, Bradbrook, at 269. 73Whether a deed has been delivered unconditionally, delivered in escrow or not delivered at all depends on the executing party's intention. This question, as I have already indicated, is to be determined on the basis of the words used by and the conduct of the promisor, taking into account the circumstances attending the execution of the deed. 74The evidence does not support a finding that the guarantees were delivered in escrow. The Bank sent the guarantees by facsimile to Madden Associates without any indication that they would be ineffective unless and until Mr Segboer forwarded the originals to the Developer or to Madden Associates. The Bank did not say that the originals would be given to Mr Segboer or that physical delivery would depend on Mr Segboer's decision. On the contrary, the Bank assured Madden Associates that the originals "will be delivered in due course". Having executed the guarantees, the Bank recorded nothing, even in its own files, suggesting that the guarantees would be delivered in escrow. 75If it matters, Mr Winnick's own evidence was not consistent with an understanding on his part that the guarantees were not to be operative until the originals were delivered to Madden Associates or the Developer. His evidence was that when he gave the originals to Mr Segboer, he expected Mr Segboer to pass them to Mr Richardson or his representative, at the earliest opportunity. Indeed Mr Winnick said in evidence that he thought it was "incumbent" on Mr Segboer to pass the originals on to "the favourees" and that he allowed Mr Segboer to have possession of the originals on that basis. 76I reject the argument that the guarantees were delivered in escrow. The Construction Argument 77The appellant did not submit that the Developer had breached a term of the guarantee by calling on the guarantee without having the original in its possession. Rather, the argument was that the guarantee, when construed as a whole, made the Bank's obligation to pay the Guaranteed Sum on demand (under cl 2) dependent or conditional upon the Developer complying with its obligation (under cl 6) to return "this document" to the Bank. Thus, according to the appellant, if the Developer was not in a position to return the original guarantee to the Bank at the time the demand was made, the Bank's obligation to pay the Guaranteed Sum did not crystallise. 78The primary Judge rejected this submission on two grounds. The first was that the reference in cl 6 to "this document" meant the copy guarantee in the form of the facsimile sent by Mr Winnick to Madden Associates on 15 March 2007. According to the primary Judge, the expression "this document" did not mean the original guarantee, which the Bank had given to Mr Segboer, but which had been returned by him to the Bank before the Developer called on the guarantee. 79The primary Judge expressed his conclusion briefly, but in substance I think his Honour was correct. I accept that if the Bank had physically forwarded the original guarantee to the Developer, cl 6 of the guarantee would require the Developer to "return" the original to the Bank "upon termination of the Bank's obligations". But in this case: * the Bank did not forward the original guarantee to the Developer despite promising that it would be "forwarded in due course"; and * the Bank had the original guarantee in its possession when the Developer called for payment of the Guaranteed Sum. 80Clause 6 of the guarantee speaks of the Developer's obligation to "return this document". There might be some circumstances in which cl 6 would require the Developer to physically deliver the original guarantee to the Bank even if the Developer itself had never taken actual possession of the original. For example, the Developer may have requested the Bank to forward the original to a third party, which subsequently failed to produce it to the Developer on demand. But the language of cl 6 is not apt to require the Developer to physically deliver the original guarantee to the Bank where the Bank not only never forwarded the original to the Developer, but had the original in its possession when the Developer called for payment under the guarantee. An obligation to "return" the original is simply not enlivened in these circumstances. If the business purpose of cl 6 of the guarantee is (as Mr Ashhurst suggested) to prevent any subsequent call being made on the guarantee, that purpose is achieved by the Bank having retained or regained possession of the original when the Developer calls for payment of the Guaranteed Sum. 81The primary Judge's second reason for rejecting the appellant's construction argument was that the guarantee did not, expressly or by implication, condition the Developer's entitlement to call for the Guaranteed Sum upon its compliance with cl 6. I think that his Honour was correct so to conclude. Thus, if it be assumed (contrary to my view) that cl 6 required return of the original guarantee, the Developer was still entitled to call for the Guaranteed Sum even though it did not have the original guarantee in its possession at the time of the call. 82A promise to pay money in an agreement or a deed is a dependent obligation if it is expressly or impliedly contingent on the occurrence or non-occurrence of another event: J W Carter, Carter's Breach of Contract (2011), at [1-08]. The other event may be the performance of an obligation by another party to the agreement or deed: Automatic Fire Sprinklers Pty Ltd v Watson [1946] HCA 25; 72 CLR 435, at 464, per Dixon J. Whether an obligation is dependent in this sense, or independent, is a question of construction of the instrument. An example of a dependent obligation is a promise by one party to indemnify a borrower against a liability to a third party provided the borrower makes certain payments punctually to the lender: cf Agricultural and Rural Finance Pty Ltd v Gardiner [2008] HCA 57, 238 CLR 570. 83Under cl 2 of the guarantee, the Bank promised to pay the Guaranteed Sum to the Developer on demand without reference to the Customer (in this case the Builders). As Mr Ashhurst accepted, the promise to pay is not expressed to be contingent on the Developer performing any particular act. Specifically, the promise to pay is not expressed to be dependent on the Developer complying with its obligation under cl 6 to "return this document to the Bank upon termination of the Bank's liability under this guarantee". 84The absence of an express link between the Bank's promise under cl 2 and the Developer's promise under cl 6 does not necessarily rule out the possibility that the Bank's obligation to pay is implicitly contingent on the performance by the Developer of its obligation to return the original guarantee (making the assumption to which I have already referred). Nor does it necessarily rule out the possibility that the Bank's obligation to pay is implicitly dependent on the Developer having possession of the original guarantee at the time it calls on the Bank to pay. However, when the guarantee is read as a whole it is clear, in my opinion, that no such implications can be made. 85The Developer's obligation to return the guarantee arises "upon termination of the Bank's obligations". Clause 4 provides that the guarantee is to continue in force, relevantly, until payment to the Developer by the Bank of the whole of the Guaranteed Sum. The Developer's obligation to return the guarantee to the Bank cannot arise until after the Bank has paid the Guaranteed Sum. It is payment of the Guaranteed Sum by the Bank that triggers the Developer's obligation to return the guarantee. In other words, the guarantee contemplates a sequence of events, with payment of the Guaranteed Sum by the Bank a necessary precondition to the Developer's obligation to return the guarantee. If the Developer's obligation to return the guarantee only arises once the Bank pays the Guaranteed Sum, it is difficult to see how the guarantee can be construed so as to make the Bank's obligation to pay contingent on the Developer holding the original guarantee at the time it calls on the Bank to pay. 86The Builder's appeal to the "business purpose" of the guarantee cannot overcome the difficulty that the document is drafted on the basis that the Bank will perform its promise to pay the Guaranteed Sum before the Developer's promise to return the guarantee can be enforced. Had the Bank's promise been intended to be contingent on the Developer retaining possession of the guarantee, or producing it to the Bank, it would have been very simple to say so. Moreover, there is nothing to indicate that the asserted purpose of protecting the Bank will not be adequately served by this construction of the guarantee. The guarantee is not a negotiable instrument (see cl 7). It might be thought that the Bank's own record-keeping systems, supported by its entitlement to return of the guarantee itself, would provide sufficient protection against multiple calls on the same guarantee. 87Mr Ashhurst relied on the consideration expressed in cl 1 of the guarantee to support the construction advanced by the Builders. The consideration is said to be the Developer at the request of the [Builders], agreeing to accept this guarantee in connection with the [Builders'] obligations to the [Developer] pursuant to the Contract [between the Builders and the Developer]. Clause 1 does not state or imply that the only way the Developer can agree to accept the guarantee in the manner specified is by physically receiving the original guarantee, much less retaining the guarantee in its possession thereafter. In any event, assuming that the guarantee was valid and enforceable (the assumption on which the construction argument was conducted), cl 1 has nothing to say as to whether the Bank's obligation to pay the Guaranteed Sum is contingent on the Developer having possession of the guarantee at the time it calls on the Bank for payment. The Contract Argument 88In oral submissions on the appeal, Mr Ashhurst advanced for the first time a contention that the guarantees were not deeds at all, but were intended to be contracts between the Bank and the Developer. He submitted that the Bank's promise to pay the Guaranteed Sum was conditional on the Developer's acceptance of the guarantee, this being the consideration for the Bank's promise expressed in cl 1. According to Mr Ashhurst, the Developer could only accept the guarantee by receiving the original guarantee from the Bank. It followed that the Developer had not provided the consideration for the Bank's promise expressed in cl 1. Since the Bank's promise to pay was conditional upon the Developer providing the consideration expressed in cl 1, the Bank's promise had never become enforceable. 89Mr Ashhurst acknowledged that this argument had neither been specifically pleaded nor had it been put to the primary Judge. Indeed, in oral submissions to the primary Judge, Mr Ashhurst stated that the guarantee was to be treated as a deed and not as a contract. Moreover, the notice of appeal did not identify this contention as a ground of appeal. The Builders' written submissions on the appeal referred to the consideration expressed in cl 1 of the guarantee, but did so only in the context of the construction argument. 90Despite the Builder's failure to raise the argument until oral submissions in this Court, Mr Ashhurst submitted that they should be permitted to put the argument because the Developer would suffer no prejudice. This, however, is a clear case where, if the contention had been raised at trial, the Developer may have wished to adduce evidence to answer it. It is far from obvious, for example, that the only way the Developer could demonstrate its acceptance of the Guarantee for the purposes of cl 1 (assuming this was necessary for the enforceability of the Bank's promise) was by taking physical delivery of the original instrument. The Developer might have wished to adduce evidence to demonstrate that it had accepted the guarantee "in connection with the [Builder's] obligations to the [Developer] pursuant to the Contract" by means other than the receipt of the original guarantee. Similarly, if the contention now relied on by the Builders had been put at trial, the Developer may well have pleaded an estoppel case and adduced evidence in support of such a case. 91In these circumstances, the Builder should not be permitted to raise the argument based on the alleged failure to provide the consideration for the first time on appeal. The Cross-Claim 92The Builders submitted that if their appeal succeeds, the orders in favour of the Bank on its cross-claim against the Builders should be set aside. Since the Builders' appeal fails, the orders on the cross-claim must stand. Conclusion 93The result is that the Builders' appeal must be dismissed. The Cross-Appeal 94As I have noted, the Bank seeks a number of orders by its cross-appeal, but only in the event that the Builders' appeal succeeds. Since the appeal has not succeeded, it is not necessary to consider whether the Bank is entitled to those orders. Nor do I think it appropriate to address issues in this judgment in case the matter goes further. Some of the issues raise questions of some complexity and, apart from the question of a restitution order (which is not really in dispute), the amounts involved appear to be modest. 95The Bank's cross-appeal seeks an additional order if the Builders' appeal is dismissed. It says that it is entitled to be indemnified in full by the Builders in respect of its costs of the appeal and cross-appeal. The Bank bases its entitlement on the indemnity contained in cl 5.5 of the General Terms (at [29**] above). 96I did not understand the Builders to dispute that, if their appeal failed, they should be required to pay the Bank's costs of the appeal and cross-appeal on an indemnity basis. An order to that effect should be made. 97The Bank also seeks an order that the Builders pay interest "on that sum, in accordance with the Facility Agreement". I do not think that an order in this form is appropriate. The sum on which interest is said to be payable is not identified. Nor is the date from which interest is to be paid or the rate of interest. It is not self-evident how the relevant provisions of the General Terms (cll 11.2, 11.4 and 11.5) apply in these circumstances. Orders 98I propose the following orders: 1. Appeal dismissed. 2. The Builders pay the Developer's costs of the appeal. 3. The Builders pay the Bank's costs of the appeal and the cross-appeal on an indemnity basis. 4. The cross-appeal otherwise be dismissed. ********** 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: 14 August 2012