Kintsu v Peninsular Group [1999] NSWSC 221 (24 March 1999)

Last Updated: 26 March 1999

NEW SOUTH WALES SUPREME COURT

CITATION: Kintsu v Peninsular Group [1999] NSWSC 221

CURRENT JURISDICTION: Commercial

FILE NUMBER(S): 50146/98

HEARING DATE{S): 19/03/99

JUDGMENT DATE: 24/03/1999

PARTIES:

Kintsu Co Limited - Plaintiff

The Peninsular Group Limited - First Defendant

Peninsular Group Australia Pty Limited - Second Defendant

Australian MacFarms Pty Limited - Third Defendant

Hutt Rental Holdings Pty Limited - Fourth Defendant

Eastern Link Pty Limited - Fifth Defendant

Brian John Finlay - Sixth Defendant

Winson Manchiu Woo - Seventh Defendant

JUDGMENT OF: Rolfe J

LOWER COURT JURISDICTION: Not Applicable

LOWER COURT FILE NUMBER(S): Not Applicable

LOWER COURT JUDICIAL OFFICER: Not Applicable

COUNSEL:

Mr I.M. Wales SC - Plaintiff

Mr J.T. Johnson - First, Second, Fourth, Fifth, Sixth and Seventh Defendants

SOLICITORS:

Truman Hoyle - Plaintiff

Sally Nash & Co - First, Second, Fourth, Fifth, Sixth and Seventh Defendants

CATCHWORDS:

Application for Summary Judgment based on the construction of a one-off agreement.

ACTS CITED:

DECISION:

Application granted

JUDGMENT:

16

I N D E X

Page

Introduction 1

The Present Proceedings 6

The Terms Of The Contract 8

The Course Of The Proceedings On 5 March 1999 11

The Proceedings On 19 March 1999 12

Orders 16

THE SUPREME COURT

OF NEW SOUTH WALES

EQUITY DIVISION

COMMERCIAL LIST

ROLFE J

WEDNESDAY, 24 MARCH 1999

50146/1998 - KINTSU CO LIMITED v THE PENINSULAR GROUP LIMITED & ORS

JUDGMENT

HIS HONOUR:

Introduction

1 By a Summons issued on 3 December 1998 the plaintiff, for which Mr I.M. Wales of Senior Counsel appeared, sought orders that judgment be entered against all the defendants, for which and whom, save for the third defendant, Mr J.T. Johnson of Counsel appeared, in the sum of $150,000 together with interest from 16 October 1998 to the date of judgment at the rate specified by the Supreme Court Rules, and that judgment be entered against all the defendants, save the third defendant, in the sum of $750,000 together with interest from the same date and at the same rate. The Summons alleged and, at least ultimately, so much was not in issue, that on 22 September 1998 the plaintiff and the defendants entered into a Deed of Settlement and Release, which is referred to in the pleadings as "the Contract", pursuant to clause 3.1.1 of which the first defendant, at the request of the other defendants, acknowledged that it was indebted to the plaintiff in the sum of $150,000 for "the TPG Commissions", and pursuant to clause 3.1.2 of which the second defendant, at the request of the other defendants, save for the third defendant, agreed to pay to the plaintiff $750,000 in consideration for which the plaintiff agreed to transfer to the second defendant all its right title and interest in shares held by the plaintiff in the third defendant, which was referred to as "the Equity Sum".

2 It was pleaded that pursuant to clause 3.2.1 of the Contract, the first defendant agreed to pay to the plaintiff the TPG Commissions by three equal monthly instalments of $50,000, the first being payable on 15 October 1998; and that pursuant to clauses 3.3.1. and 3.3.2, the second defendant agreed to pay to the plaintiff the Equity Sum either in full on 15 October 1998, or by seven monthly instalments of $100,000 and one instalment of $50,000, the first instalment of $100,000 being payable on 15 October 1998.

3 It was further pleaded that pursuant to clause 3.5.1 if either the first or second defendant failed to pay the moneys due pursuant to clauses 3.2.1 or 3.3.2 on or before 15 October 1998 the plaintiff was entitled to issue a Default Notice requiring payment within twenty one days of that Notice and making time of the essence, and that pursuant to clause 3.5.2 if the first and/or second defendants failed to comply with that Notice all moneys due by them pursuant to the Contract "would become immediately due and payable with interest ...".

4 In paragraph 10 it was pleaded that neither defendant paid the moneys due on 15 October 1998 and, in paragraph 11, that on 16 October 1998 the plaintiff served upon the first and second defendants a Default Notice requiring payment of the initial instalments on or before 7 November 1998 and making time of the essence. In paragraph 12 it was pleaded that the moneys demanded and payable on 7 November 1998 were not paid "and consequently all monies due and payable by the first and second defendants pursuant to the Contract have fallen due for payment".

5 All the matters to which I have referred were admitted in paragraph 3 of the Notice of Grounds of Defence filed on 18 February 1998 "subject to paragraph 2 above". Paragraph 2 of that document, whilst admitting that the defendants executed the Contract, did not admit that the plaintiff validly executed it "on that date or at any date thereafter prior to the date of the commencement of these proceedings". That basis of defence was expressly abandoned by Mr Johnson on 5 March 1999.

6 The Summons continued that pursuant to clause 3.9 of the Contract the second to seventh defendants, and the first and fourth to seventh defendants respectively guaranteed the obligations of the first and second defendants under the Contract. In paragraph 13, where secondly appearing, it was asserted that the plaintiff was entitled to judgment against all defendants "forthwith".

7 The Notice of Grounds of Defence pleaded:-

"In answer to paragraph 13, subject to paragraph 2 above and the fact that the defendants say that the plaintiff has not made any demand upon the defendants in their capacity as guarantors as required by clause 3.9.3(b), the respective defendants admit the matters set forth therein."

8 This raised one issue, namely whether there was a contractual obligation on the plaintiff, before it could recover against the defendants in their capacity as guarantors, to make a demand on the defendants, which it had not done.

9 On 24 February 1999 the plaintiff filed a Notice of Motion seeking summary judgment against all, save the third, defendants, pursuant to Part 13 rule 2. That Notice of Motion was supported by the affidavits of Mr Warwick David Abadee and Mr Timothy Fulton Edwards, both sworn on 23 February 1999. Both affidavits were read and relied upon.

10 The Notice of Motion came before me on 5 March 1999. Mr Johnson, in addition to abandoning the defence raised in paragraph 2 of the Notice of Grounds of Defence, agreed that the only matter in issue was whether, on a proper construction of the Contract, the plaintiff was entitled to succeed in circumstances where it had not given a notice. This defence, it was conceded, only availed the defendants in their capacity as guarantors and Mr Johnson conceded that the first and second defendants had no defence in respect of their obligations under clause 3.5.2 of the Contract. In these circumstances he consented to judgment for the plaintiff against the first defendant for $155,465.60, and against the second defendant for $777,239.40, each of such amounts including an interest component to 5 March 1999. He also consented to an order that those defendants pay the plaintiff's costs of the proceedings to date, and it was noted that the judgment sums were in respect only of the first and second defendants' obligations under paragraph 3.5.2 "and not in respect of their obligations as guarantors or persons bound to indemnify the plaintiff under the said Deed".

11 Although Mr Wales submitted that it was not necessary to give notice either at all or pursuant to clause 3.9.3(b) he decided, for an abundance of caution, to do so and in those circumstances, and without opposition from Mr Johnson, I granted the plaintiff leave to file and serve an Amended Summons by 12 noon on Thursday, 11 March 1999 and I stood the Notice of Motion for Summary Judgment over until Friday, 19 March 1999. I gave certain further directions and made the orders to which I have referred.

The Present Proceedings

12 On 9 March 1999 the plaintiff filed an Amended Summons containing the same allegations as those set forth in paragraphs 1 to 11 of the original Summons.

13 The amendments were made in paragraphs 12 to 18 inclusive, it being alleged in paragraph 12 that further or in the alternative the plaintiff served further Default Notices on or about 3 December 1998; that the moneys demanded and payable on 7 November and 24 December 1998 pursuant to the several default notices were not paid "and consequently all moneys due and payable by the first and second defendants pursuant to the Contract have fallen due for payment"; that pursuant to clause 3.9 various defendants guaranteed the obligations of the first and second defendants and indemnified the plaintiff in respect of any failure by them to perform their respective obligations; that by notice given to the defendants on or about 8 March 1999 the plaintiff required them to comply with their obligations under the Contract, which they failed to do; and that on 3 December 1998 the plaintiff filed a Summons in the Equity Division and subsequently served it upon the defendants, which Summons constituted a demand with which demand the defendants failed to comply.

14 The Notice of Grounds of Defence to the Amended Summons again raised whether the plaintiff validly executed the Contract, an allegation which was expressly abandoned when the matter was heard on 19 March 1999. Subject to that matter paragraph 3 was admitted and, the effect of the Defence was to admit paragraphs 1 to 14 inclusive.

15 In paragraph 4 it was pleaded:-

"4. In answer to paragraphs 15, 16 and 17 of the Amended Summons the defendants, subject to paragraph 2 above, say:

(a) that the plaintiff did not make any demand upon them in their capacities as guarantors and/or indemnifiers as required by clause 3.9.3(b) or at all prior to the commencement of these proceedings;

(b) that they admit the matters set forth therein; and

(c) that any demand made by virtue of the filing and serving of the Summons or after the commencement of the proceedings is of no validity to ground any action against them."

16 There was then a denial of the amount claimed and, in paragraph 6, which was added subsequently, it was pleaded:-

"In the alternative to paragraph 5 above if it is that the defendants are liable in these proceedings for any amount (which is denied) that amount is limited to those instalments due under clauses 3.1.1 and 3.2.1 as to the liability of the first defendant as primary obligor under the Deed and clause 3.3.2 as to the liability of the second defendant as primary obligor under the Deed at the date of commencement of the proceedings and not to any accelerated obligation of the first defendant or the second defendant arising under any other clause of the Deed."

17 The matter proceeded, as I have indicated, by way of a Motion for Summary Judgment. Whilst it was inherent in the way in which the motion was treated on 5 March 1999 that no point was being taken that this was an inappropriate vehicle in which to determine the dispute, no submission having been put to me that the General Steels test had not been met, Mr Johnson expressly agreed on 19 March 1999 that no such point was being taken, that there was no evidentiary matter on which the defendants for which and whom he appeared wished to rely, and that I should treat the hearing as being a hearing of the points raised in the Notice of Grounds of Defence to the Amended Summons on a final basis. Accordingly, in the way in which the case was conducted before me, which, if I may say so with respect, was eminently sensible having regard to the short issues raised, no discretionary question as to whether this was an appropriate case in which to exercise the summary judgment jurisdiction was raised and, to the contrary, Mr Johnson invited me to determine the matter as on a final hearing.

The Terms Of The Contract

18 The contract was stated to be Deed of Settlement and Release between various parties including the plaintiffs and the defendants. In clause 2 it recited various litigation between the parties, the following sentence appearing at the conclusion of that clause:-

"Without admission, the Parties wish to settle their disputes upon the terms and conditions contained in this deed."

The words "party" and "parties" defined each party and all parties to the Contract. Clause 3.1 contained an acknowledgment by the first defendant of its indebtedness to the plaintiff for the TPG Commissions in the sum of $150,000. Clause 3.2.1 stated that the first defendant "shall pay" the plaintiff that amount "in full and final satisfaction of TPG Commissions" by instalments of $50,000 on or before 15 October, November and December 1998.

19 Clause 3.3.1 provided that the second defendant "shall pay" to the plaintiff "the Equity Sum" of $750,000 on or before 15 October 1998. Clause 3.3.2 provided that if the second defendant did not do so it was to pay the plaintiff by instalments of $100,000 each on 15 October, November and December 1998, and 15 January, February, March and April 1999, with a final instalment of $50,000 on 15 May 1999.

20 Clause 3.5.1 provided that should any of the amounts referred to in clauses 3.2.1 and 3.3.2 not be paid on the dates specified therein, the plaintiff should be entitled to serve upon the defaulting party or parties notices requiring payment of the sum due within twenty one days of the date of the notice and making time of the essence of that payment. Such a notice is described in the Contract as "a Default Notice".

21 Clause 3.5.2 provided that if the sum demanded in a Default Notice was not paid on or before the date stated in such Notice all outstanding moneys due and owing to the plaintiff pursuant to clauses 3.2.1 and 3.3.2 inclusive "shall become immediately due and payable without further notice or demand"; and that the plaintiff should be entitled to interest on all of the moneys referred to in sub-clause (a) "at the rate specified from time to time in Schedule J of the Supreme Court Rules from the date stated in a Default Notice until the date of payment".

22 Clause 3.9.1 provided that the second to seventh defendants inclusive:-

".. hereby individually and together guarantee in favour of Kintsu the due and punctual performance by TPG of its obligations to pay the TPG Commissions in the sum and on the date specified in clause 3.1.1 and 3.2.1 of this deed and agree to indemnify Kintsu in respect of any failure by TPG to duly perform its obligations under clause 3.1.1 and 3.2.1 of this deed."

23 Clause 3.9.2 provided that the first and third to seventh defendants:-

".. individually and together hereby guarantee in favour of Kintsu the due and punctual performance by PGA of its obligations under clause 3.3.2 of this deed and agree to indemnify Kintsu in respect to any failure by PGA to duly perform its obligations under clause 3.3.2 of this deed."

24 Paragraph 3.9.3 provided the bases on which guarantees and indemnities were given, sub-clause (b) thereof stating that in the event of any failure by a Party, whose performance had been guaranteed, duly and punctually to perform its obligations, the guaranteeing Party will forthwith on demand perform or procure performance of the required obligations.

25 It was not suggested that either sub-clauses (a) or (c) were relevant, but sub-clause (d) was relied upon, it providing:-

"(d) in the event of any Party is unable to obtain performance by guaranteeing Party on the surety on the footing of a guarantee (for any such reason whatever) then such performance shall nevertheless be obtainable from such guaranteeing Party as a principal obligation of that guaranteeing Party and each guaranteeing Party as a separate and additional obligation shall indemnify Kintsu in respect thereof."

The Course Of The Proceedings on 5 March 1999

26 The sole argument advanced by the defendants, for whom and which Mr Johnson appeared on 5 March 1999, was that clause 3.9 had not been activated because no demand had been made on the parties such as to make them liable under the guarantee provisions and, accordingly, it could not be said that the plaintiff was unable to obtain performance by a guaranteeing party of its guarantee such as to give rise to the right to pursue the guaranteeing parties by way of claiming the existence of a principal obligation because of the word "then" in sub-clause (d).

27 Mr Wales submitted that this was not a disqualifying factor and that, when one had regard to the terms of the Contract as a whole, it was not necessary to give such notice and, further, that it was not necessary to give notice to activate the principal indemnity provision.

28 After some discussion, however, Mr Wales decided, for an abundance of caution, to accept judgment against the first and second defendants in the terms to which I have referred, and to have the proceedings stood over so that a Notice of Demand could be served and, thereafter, the Summons amended. This was done and I have noted the amendments to the Summons.

The Proceedings On 19 March 1999

29 The Notice of Grounds of Defence to the Amended Summons, upon which reliance was placed initially, was that as the demand had not been made prior to the commencement of the proceedings, it was not a demand upon which the plaintiff could rely in these proceedings. Mr Johnson's submission was that if fresh proceedings were instituted this submission would not avail the defendants in their roles as guarantors and indemnifiers.

30 In my opinion there was no substance in that submission. Part 20 rule 1(3A) provides:-

"An order may be made, or leave may be granted, under sub-rule (1) notwithstanding that the effect of the amendment is, or would be, to add or substitute a cause of action arising after commencement of the proceedings, but in such a case the date of commencement of the proceedings, so far as concerns that cause of action, shall, subject to sub-rule (4) be the date on which the amendment is made."

31 It was not submitted that sub-rule (4) has any application. Accordingly the date of the commencement of the proceedings, so far as concerns the additional cause of action, is the date on which the amendment was made, namely 9 March 1990.

32 In the face of the clear words of the sub-rule Mr Johnson's submission was that it only applied if there was a subsisting cause of action to which the further cause of action may be added or for which it may be substituted. He submitted that in the present case the original Summons contained no cause of action and, accordingly, sub-rule (3A) had no application.

33 I do not agree with this submission for several reasons. Firstly, the power to amend is a power to amend "any document in the proceedings". It may well be that a pleading is held not to disclose a cause of action and, for that reason, the Court may decide to exercise its power to strike out the pleading. It frequently happens, in those circumstances, that the Court grants leave to amend the document to plead a cause of action. In my opinion the words of the rules, particularly having regard to the requirement of sub-rule (2) that all necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceedings, or of correcting any defect or error in any proceedings, or of avoiding multiplicity of proceedings, are totally at odds with the submission made by Mr Johnson.

34 Secondly, even if I be wrong in the view I have taken of a provision intended to ensure that the real matters in issue are litigated and that there is an avoidance of multiplicity of proceedings, it is not correct to say that the Summons did not disclose a cause of action. It disclosed a cause of action, as was conceded by Mr Johnson, against the first and second defendants in relation to their primary obligations. Therefore, even if contrary to the view to which I have come, it is necessary to have a viable cause of action in the original Summons, to which another cause of action could be added or for which a cause of action could be substituted, such an original cause of action existed.

35 Understanding the force of this position Mr Johnson submitted, in reply, that the amount payable by the defendants was limited to the instalments under clauses 3.1.1 and 3.2.1 as to the liability of the first defendant as primary obligor under the Contract, and clause 3.3.2 as to the liability of the second defendant as primary obligor under the Contract at the date of the commencement of the proceedings, and not to any accelerated obligation arising under any other clause of the contract. I required this to be pleaded and, accordingly, Mr Johnson brought in a Further Amended Notice of Grounds of Defence incorporating paragraph 6.

36 Mr Johnson conceded that this defence did not avail the defendants in relation to the liability of the first defendant, as the obligation to make all three payments pursuant to clause 3.2.1, even on his submission, had come to fruition by 15 December 1998. The only submission made was that the Summons was issued on 3 December 1998, prior to the instalment of 15 December 1998 falling due, and, accordingly, it was not recoverable. However that submission, in my opinion, overlooked the clear words of sub-rule (3A).

37 A similar submission was made in respect of the payments to be made pursuant to clause 3.3.2, it being noted that there were six payments to be made after 3 December 1998, and three payments to be made after the Amended Summons was filed on 9 March 1999.

38 Mr Johnson's submission was that on a proper construction of clauses 3.9.1 and 3.9.2 the only obligations undertaken by the guarantors and indemnifiers were to pay the instalments as they fell due in accordance with the timetable set forth in clauses 3.2.1 and 3.3.2. This submission may have some force in relation to the guarantee provision, although in my opinion, on a proper reading of the whole of the Contract, once the totality of the moneys became payable it ceased to have the effect for which Mr Johnson contended. However, in my opinion, Mr Johnson's submission could not overcome the words of the agreement to indemnify the plaintiff in respect of any failure by the first and second defendants "to duly perform its obligations" under clauses 3.1.1, in so far as it imposed any obligation, 3.2.1 and 3.3.2.

39 The question then is what that obligation was. The answer to that is provided by clauses 3.5.1 and 3.5.2, it not being in issue that Default Notices were served, thereby making all outstanding moneys due and owing to the plaintiff pursuant to the payment clauses "immediately due and payable without further notice or demand". Thus, in my opinion, the indemnity provisions allow for the recovery of the moneys from the fourth, fifth, sixth and seventh defendants. There has already been judgment entered against the first and second defendants and the plaintiff, as I understood it, did not press for judgment against the third defendant.

Orders

40 I order that:-

(1) Pursuant to Part 20 rule 1(3A) the date of commencement of the proceedings, so far as concerns any cause of action asserted in the Amended Summons not in existence on 3 December 1998, be 9 March 1999.

(2) Judgment for the plaintiff against the fourth, fifth, sixth and seventh defendants in the sum of $156,132.50, which sum is inclusive of interest.

(3) Judgment for the plaintiff against the fourth, fifth sixth and seventh defendants in the sum of $780,663.50, which sum is inclusive of interest.

(4) The defendants, other than the third defendant, pay the plaintiff's costs of the proceedings.

LAST UPDATED: 24/03/1999