Breona Pty Ltd v Gosatti

1. [1]

   The plaintiff claims judgment for $2,120,209.53 against the defendants as guarantors of Miluc Civil Pty Ltd (“Miluc Civil”). It is alleged that the principal debt arose from the provision of funding by First Class Securities Pty Ltd (“FC Securities”) to Miluc Civil in 2017. The plaintiff brings the claim as assignee of the principal creditor. It is alleged that FC Securities assigned all its debts to Finstro Securities Pty Ltd on 31 May 2019 and that company in turn assigned its debts to the plaintiff on 22 July 2020. Miluc Civil commenced winding up on 4 October 2018 under an order of the Supreme Court of Western Australia. The company was deregistered on 4 June 2019.

2. [2]

   On or about 10 April 2017 FC Securities as “Funder” entered into a Debt Funding Facility Agreement (the “Agreement”) with Miluc Civil, referred to therein as “Merchant”. The Agreement was also executed by a related corporation of FC Securities, referred to as the Processing Agent. That entity’s role under the Agreement has very little bearing on the present dispute and further reference to it in these reasons will be minimal. The two defendants were husband and wife and were directors of Miluc Civil. They executed the agreement as guarantors of Miluc Civil’s obligations. A trustee corporation that they controlled was the third guarantor. The plaintiff alleges that during 2017 various amounts were advanced to Miluc Civil under the Agreement and that in late 2017 and early 2018 the company defaulted on repayment of three amounts totalling $766,048.80. The plaintiff’s claim is for that sum together with simple interest calculated under the Agreement at 0.1% per day on the three amounts from their respective due dates. The interest claimed up to 12 April 2023, being the last day of the hearing, is $1,354,160.73. Interest accrues thereafter at $766.05 per day.

Issues

1. [3]

   The defendants were represented by a solicitor when their defence was filed on 23 June 2022 and when they each swore an affidavit on 23 September 2022. They appeared self-represented at the final hearing. By their defence the following issues are raised:

   1. (1)

      The defendants deny that Miluc Civil “was a customer of [FC Securities]” as alleged in the statement of claim or that they were “guarantors of the facility provided” to Miluc Civil.

   2. (2)

      The defendants contend that FC Securities and/or its assignees cannot recover from them, in respect of any debt of Miluc Civil, interest calculated after the date of winding up of the company.

   3. (3)

      The defendants deny the plaintiff’s allegations that FC Securities “advanced credit to [Miluc Civil] in accordance with the Agreement”, that it was a term of the Agreement that FC Securities “agreed to loan to [Miluc Civil] the amounts specified in the Tranche Schedules (Loan Amount)” and that by the Agreement Miluc Civil “agreed to repay the Loaned Amount plus fees and charges by instalments to FC Securities”.

   4. (4)

      The defendants dispute that Miluc Civil “defaulted under the Agreement” by failing to pay to FC Securities three amounts alleged to have fallen due on 29 October, 29 November and 29 December 2017.

   5. (5)

      The defendants dispute that they are bound by the guarantee clause in the Agreement, on the basis pleaded at pars 9 and 10 of their defence as follows:

   6. (6)

      The defendants dispute the efficacy of the assignment of the alleged debt from FC Securities to Finstro Securities Pty Ltd on 31 May 2019 and from that company to the plaintiff on 22 July 2020, because they assert that they did not receive notice of the assignments in accordance with s 12 of the Conveyancing Act 1919 (NSW).

2. [4]

   Issues (1), (3) and (4) require close consideration of the Agreement and of the transactions between FC Securities and Miluc Civil that the plaintiff contends were effected under its terms. There are serious questions to be determined as to whether the transactions conformed to the Agreement and, hence, whether any resulting indebtedness of Miluc Civil is properly to be characterised as an obligation pursuant to the Agreement, so as to be a subject of the defendants’ guarantee. The alternative hypothesis is that the transactions were not effected in accordance with the Agreement and that any resulting debt of Miluc Civil is not one to which the defendants’ guarantee pertains.

3. [5]

   Issues (1), (3) and (4) will be considered first. The examination of the Agreement that those issues call for will provide context for consideration of issues (2), (5) and (6). There are three additional matters that the defendants sought to raise, outside the pleadings, as follows.

4. [6]

   First, Mr Gosatti deposed that when he received the Agreement for execution he procured his wife’s signature by mixing the document with “various NAB documents that also required signing at the time”, so that she would not understand that she was placing her signature on a guarantee. Adjacent to the place where Mrs Gosatti signed as an individual guarantor is the signature of Faith Gosatti, Mr Gosatti’s mother, as witness. She worked as a receptionist at Miluc Civil’s office. Mr Gosatti deposed that his mother did not witness the signing by Mrs Lucy Gosatti but that he arranged for her to sign as witness at a later time. Mrs Lucy Gosatti deposed that she was unaware of having signed the Agreement.

5. [7]

   In oral submissions after the evidence had closed, Mrs Gosatti sought to invoke the defence of non est factum. That was not pleaded and I would not allow an amendment for the purpose of introducing the defence at such a late stage. The plaintiff may have been able to adduce additional evidence and to cross-examine both of the defendants on that subject if there had been notice of it. The plaintiff may have subpoenaed Faith Gosatti, who was not called by the defendants.

6. [8]

   Prima facie, the defence would have been untenable in any event. On her own evidence taken at its highest, Mrs Gosatti did not exercise reasonable care for her interests. She signed the Agreement in three places: twice as a director – of Miluc Civil and of another corporation controlled by the defendants, which was the third guarantor – and once as an individual guarantor. Each signature space was clearly labelled, in print, under the line where the signature was to be placed. The lines on which Mrs Gosatti signed on behalf of the two corporations were labelled “Director” and the line on which she signed in her personal capacity was labelled “GuarantorSignature – Lucy Gosatti”. To sign in such circumstances without ascertaining the contents of the document amounts to carelessness, which has not been qualified or rebutted by any other evidence. Further, if Mrs Gosatti signed in the matter she has described, without seeing what the document was, there is no evidence to suggest that FC Securities was on notice of that. FC Securities’ innocence with respect to the circumstances of signing is another reason why the plea of non est factum would fail: Petelin v Cullen (1975) 132 CLR 355; [1975] HCA 24.

7. [9]

   Secondly, in closing submissions both defendants sought to invoke the Contracts Review Act 1980 (NSW). No claim for relief under that Act had been made in the defence. I would not permit an amendment to raise such a claim after the evidence had closed, when the plaintiff’s opportunity to make a case in opposition had passed.

8. [10]

   Thirdly, in closing submissions Mrs Gosatti claimed that she did not benefit from the loan to Miluc Civil, that she was not involved in the company’s daily operations, that she did not have a direct interest in finance provided to the company by the plaintiff and that as Mr Gosatti’s wife she had an emotional dependence upon him. She submitted that the plaintiff knew or should have known of those circumstances and that it therefore acted unconscionably in procuring her personal guarantee without taking active steps to ensure that she understood the transaction or at least that she had received independent legal advice about it.

9. [11]

   Mrs Gosatti cited Yerkey v Jones (1939) 63 CLR 649; [1939] HCA 3, Garcia v National Australia Bank Ltd (1998) 194 CLR 395; [1998] HCA 48 and several other cases in support of her argument. In the latter case, Gaudron, McHugh, Gummow and Hayne JJ stated the applicable principles as follows (emphasis added):

10. [12]

    Mrs Gosatti submitted that her position in the present litigation is within the “second kind of case" so described. However, the facts that would have to have been established before the Court would intervene on the grounds of unconscionable conduct of that type were not pleaded. The only references in the defence to unconscionable conduct are as quoted, above, from pars 9 and 10. There is no allegation, nor any evidence in Mrs Gosatti’s affidavit, that she did not understand the purport and effect of the transaction. She just claims that she did not know she had entered into any transaction. There is no allegation or evidence that Mrs Gosatti gained nothing from the Agreement. The defence and the evidence are silent as to the extent of Mrs Gosatti’s financial stake in Miluc Civil and as to what she might have gained from the company receiving finance. As these matters were not pleaded the plaintiff was not on notice to inquire into them or to adduce evidence that may have excluded the application of Yerkey v Jones and Garcia v National Australia Bank Ltd. Accordingly, this aspect of Mrs Gosatti’s does not arise for the Court’s decision. Leave to amend to allege unconscionable conduct upon this basis could not have been granted in view of the obvious prejudice that would be caused to the plaintiff.

Entry into the Debt Funding Facility Agreement

1. [13]

   In 2017 Miluc Civil carried on business as a civil engineering and earthworks contractor. Ms Lucy Gosatti resigned as a director of the company with effect from 8 September 2017 but Mr Michael Gosatti continued in office until the winding up commenced. On 15 February 2017 Miluc Civil entered into a contract with the Water Corporation of Western Australia to carry out substantial works at Bridgetown, about 250 km south of Perth, for a contract price of just under $3.4 million. On 28 February 2017 the company secured a second contract with the Water Corporation for works at Bruce Rock, approximately 240 km east of Perth. The total amount payable under the second contract was nearly $4.8 million. Each contract provided for Miluc Civil to render periodic invoices to the Water Corporation for progress claims.

2. [14]

   In March 2017 Mr Gosatti sought funding for Miluc Civil from FC Securities. He was introduced to that source of finance by Mr Ed Gilfilan who has been variously described in the evidence as a broker and as a franchisee of FC Securities. The application was made online. Mr Gosatti opened a web page hosted by FC Securities. The functionality of the website was governed by a system named TIQ. In accordance with FC Securities’ business model and practice, Mr Gosatti entered, in designated fields on the webpage, personal identification particulars for himself and for Mrs Gosatti, Miluc Civil’s Australian Business Number (“ABN”) and other details, information concerning the amount of funding required, details of the company’s bank account and particulars of its contracts with the Water Corporation. The TIQ system was so configured that it would automatically transmit enquiries, based upon the particulars provided, to the Australian Securities and Investments Commission and to a credit reference agency, whereby the identity of Miluc Civil and its directors and their credit standing could be the subject of an initial automated check.

3. [15]

   Funding in the order of $1 million was sought in Mr Gosatti’s online application. At that level, FC Securities required that the contracts with the Water Corporation should be submitted. It also required financial information concerning Miluc Civil for the last full financial year and management accounts for the then current financial year. The application was considered by a credit committee. A facility limit of $1 million was adopted. The TIQ system was capable of generating a Debt Funding Facility Agreement, utilising a pro forma that was stored in a database. The system could automatically insert into the pro forma particulars of the Merchant (as the applicant for finance was described), particulars of the directors and guarantors and other details required to complete the Agreement. The system could also generate a covering letter, addressed to the applicant for finance, to enclose the Agreement with instructions for execution. On 29 March 2017 those capabilities of the TIQ system were activated and a Facility Agreement with all particulars inserted was posted to the defendants for execution. They duly signed it and returned it to FC Securities, whereupon it was recorded in the company’s records as having been approved and entered into on 10 April 2017.

Construction of the Agreement

1. [16]

   The Agreement is drafted in unusual, unclear and in some respects contradictory terms. In clauses that will be quoted fully hereunder, the defendants promised to guarantee and indemnify FC Securities “against any failure by [Miluc Civil] to perform its obligations” (cl 27). The obligations guaranteed are only those assumed by Miluc Civil under the Agreement. The dealings by which Miluc Civil received funds from FC Securities, to be described fully later in these reasons, appear to have departed significantly from what is provided for in the Agreement, on any view of its meaning.

2. [17]

   The Agreement comprised 30 clauses over two pages, followed by two pages for execution then a series of attachments. The preamble and cll 1 and 2 are as follows (with some emphasis added):

3. [18]

   The 30 clauses are replete with capitalised terms that are defined in Annexure A–Terms and Conditions. Some of the capitalised terms are assigned numerical values or other details in the first attachment to the Agreement, which is a schedule entitled Facility Particulars. The drafting of the 30 clauses is apparently intended to enable this single pro forma agreement to be utilised for two distinct types of funding. That is made clear from the outset in cl 3, as follows (with some emphasis added):

4. [19]

   Capitalised terms used in the above clauses are assigned the following definitions in par 14.1 of Annexure A–Terms and Conditions:

5. [20]

   The only Customer of Miluc Civil that FC Securities was informed about in connection with the Agreement was the Water Corporation. If FC Securities were to acquire from Miluc Civil debts due from the Water Corporation, as envisaged for the first Facility Type described in cl 3 (Debtor Acquisition), then Miluc Civil would receive payment not by way of loan but as consideration or purchase price for the debt. Miluc Civil would be obliged to assign the Water Corporation debt to FC Securities, which thereafter would have no claim against Miluc Civil but would have to look to the Water Corporation for payment of the assigned debt. The legal rights and obligations that would thereby arise would be different in fundamental respects from those that would arise from FC Securities “providing financial accommodation to your Customers to pay specific Debts”, as envisaged for the second Facility Type described in cl 3 (Debtor Funding). Under that Facility Type the borrowed funds would be used by the Water Corporation to pay a “specific Debt” owed by it to Miluc Civil, which thereafter would no longer be owed money by its Customer – and nor would it owe money to FC Securities. Under transactions of that nature, FC Securities would become a lender to the Water Corporation and that entity would come under the obligation of repayment of the loan.

6. [21]

   In order for such “financial accommodation” to the Water Corporation to be enforceable against that entity, FC Securities would have to procure its execution of the Agreement as a party thereto or, alternatively, enter into separate lending agreements with the Water Corporation on an invoice-by-invoice basis. Neither of those things was done, notwithstanding that the parties expressly elected for the Facility Type to be Debtor Funding, as explained under the following subheading. The fact that FC securities did not make the Water Corporation party to the Agreement, or otherwise separately contract with it, does not negate the parties’ election. As will be seen, after execution of the Agreement FC Securities and Miluc Civil proceeded to effect transactions that bore no relation to any of the clauses. The failure to join the Water Corporation as a party or to contract with it separately is just one of many respects in which the principal lender embarked upon a course of dealing with the principal borrower that did not fall within either of the alternative forms of of financing envisaged in the Agreement.

7. [22]

   The Facility Particulars in the first annexure to the Agreement include the following:

8. [23]

   The plaintiff submits that the entry “Facility Type: Debtor Funding” is so obviously a mistake that the Court could correct it to give effect to “the intention of the parties as a matter of construction”. That submission requires consideration of the limitations of what is sometimes referred to as rectification by construction. In Seymour Whyte Constructions Pty Ltd v Ostwald Bros Pty Ltd (In liquidation) (2019) 99 NSWLR 317; [2019] NSWCA 11 Leeming JA explained the principles as follows (some citations omitted):

9. [24]

   Neither of the two essential conditions for rectification by construction are present. There is no absurdity about the specification of the Facility Type as Debtor Funding and there is no evidence of anything in the dealings between the parties or in other surrounding circumstances that would make it self-evident that, objectively, they must have intended to specify Debtor Acquisition.

10. [25]

    The plaintiff relies upon the following further entry in the Facility Particulars:

11. [26]

    I reject the plaintiff’s submission that the Agreement should be construed as providing that the Facility Type would be Debtor Acquisition.

12. [27]

    It is necessary to set out the remaining 27 clauses of the Facility Agreement for the purpose of examining which clauses may be referable to which of the two alternative Facility Types identified in cl 3 and whether the Agreement as a whole provides for any other type of facility that might, unlike the two already mentioned, give rise to an obligation of Miluc Civil to repay funds to FC Securities such that the defendants could be liable as guarantors in respect of that obligation. In the following reproduction of the clauses there are inserted in brackets some definitions of capitalised, terms taken from par 14.1 of Annexure A–Terms and Conditions:

13. [28]

    The draughtsman of this document was very optimistic to have tried to combine in one pro forma an agreement for FC Securities to purchase debts from a Merchant and an alternative agreement for FC Securities to lend money to the Merchant’s Customers, with the election between those alternatives to be made by an entry in the Facility Particulars. The draughtsman does not appear to have recognised that the Debtor Funding alternative, involving provision of “financial accommodation to your Customers”, would require that the Customers should be parties to the Agreement or should otherwise separately contract with the lender. It is not apparent why it should have been thought useful or practical to attempt such a difficult drafting exercise, rather than to prepare two separate pro forma agreements from which FC Securities would choose one to suit the type of funding that it wished to provide in each case. Whatever the reason for the drafting endeavour, the result cannot be regarded as an unqualified success.

14. [29]

    Some of the clauses appear to be exclusively referable to Debtor Acquisition, as defined in cl 3: for example, cll 14, 16, 19, 20. Other clauses seem referable to Debtor Funding: see cl 17. Many provisions appear to be either incompatible with either Facility Type, or, while not being incompatible, do not have any apparent role to play in relation to either Facility Type: see cll 15, 18, 21-24. Some clauses are capable of fulfilling a purpose in relation to either Facility Type: see cll 7-11.

15. [30]

    The plaintiff made this submission:

16. [31]

    Those principles are undoubtedly sound but the Court has found it impossible to apply them with any benefit to this instrument. Harmonious construction of the provisions is subverted by their explicit dedication to the creation of discordant types of legal relations. Not all of the provisions are amenable to being assigned a field of operation for either type. “Congruent operation to the various components of the contract as a whole” is, on the face of the Agreement, not intended or achievable. The terms envisage an election between the two different Facility Types, thereby explicitly accepting that some clauses may be incompatible with, or at least not intended to apply to, one or other of the alternatives. One cannot confidently discern, on an objective basis, for either one of the alternatives what is the full extent of the clauses that should be treated as operative for that Type, or which ones should be treated as applicable only to the other alternative. Ultimately the inability to arrive at an overall construction of the Agreement is not an impediment to determining the plaintiff’s claim because, as explained below, the transactions pursuant to which Miluc Civil’s debt is alleged to have arisen were clearly not effected in conformity with any coherent subset of the Agreement’s provisions.

17. [32]

    Applying the 30 operative provisions to the circumstances of this case, a Customer Agreement is an agreement by the Water Corporation to pay Miluc Civil a specific Debt. A Customer Agreement is, therefore, distinct from an invoice rendered by Miluc Civil, which would be unilaterally issued and might be disputed by the Water Corporation. The effect of cll 7-10 is that, in order to oblige FC Securities to provide funds, Miluc Civil would first have to “upload to the System” information as required by FC Securities concerning an agreement by the Water Corporation to pay a Debt (cll 7 and 8). Next, the Water Corporation would have to visit FC Securities’ website, online, and enter particulars of its agreement to pay the specific Debt to Miluc Civil. It would do so by interacting with a part of the website referred to in the Agreement as the Customer Portal (cl 9). The third step would be for FC Securities to satisfy itself concerning the Debt and the Customer Agreement and then to inform Miluc Civil that the Customer Agreement is Approved.

18. [33]

    Up to this point in the Agreement, it would be expected that there would follow clauses requiring FC Securities to provide the amount of the Debt owing under the Approved Customer Agreement. In line with earlier clauses, for cases where the Facility was to be of the Debtor Acquisition type one would expect there to be provision for that amount to be paid to Miluc Civil to purchase the invoice debt, perhaps subject to a discount. For cases where the Facility was to be of the Debtor Funding type, one would expect a provision that the amount of Debt be advanced to the Water Corporation by way of “financial accommodation” to enable the Water Corporation to discharge its obligation to Miluc Civil on the invoice. Instead of either of those alternatives, cll 12 provides that approval of a Customer Agreement is to be followed by FC Securities issuing a Tax Invoice and a Tranche Schedule. Having regard to the definition of a Tranche as “a funding amount we provide to you or to your Customer”, the issuance of a Tranche Schedule, in the nature of a payment advice, is understandable. However, the issuance of a Tax Invoice, requiring money to be paid by the Merchant to FC Securities, is incongruous and not coherent.

19. [34]

    Amongst the 30 clauses quoted above there is not created any obligation of the Merchant to pay anything to FC Securities, for which FC Securities could raise an invoice. The Merchant’s substantive obligations in consideration for the provision of funds are contained in cll 16 and 17. If the Facility Type is Debtor Acquisition, Miluc Civil assigns the Water Corporation’s debt to FC Securities. If the Facility Type is Debtor Funding, Miluc Civil accepts that funds advanced by FC Securities to the Water Corporation will be appropriated to Miluc Civil in discharge of the invoice Debt. Either way, the Water Corporation becomes indebted to FC Securities. Miluc Civil does not.

20. [35]

    The plaintiff made the following submissions in an attempt to explain how the Agreement would operate on the basis that there was an election for a Debtor Funding type of facility:

21. [36]

    I reject the proposition that the above is “the ordinary and proper construction of cl 17”. The introductory words of that clause are: “If the Facility Type is Debtor Funding …”. The capitalised expression Debtor Funding is explained only in cl 3, where it is said to consist of “providing financial accommodation to your Customers to pay specific Debts”. Clause 17 is therefore concerned with circumstances in which FC Securities agrees to “provide financial accommodation to” a Customer, such as the Water Corporation. It is meaningless to speak of FC Securities having agreed to “fund to Miluc Water Corporation’s payment of the Debt”. In that paraphrase, insertion of the words “to Miluc” is an unsupportable and ineffective addition by counsel. It cannot conceal the fact that when “Debtor Funding” was selected, the agreement provided only for funding of the Water Corporation.

22. [37]

    The plaintiff’s submission continues as follows:

23. [38]

    There is a greater difference between the two Facility Types than that acknowledged in the first sentence of this passage. Fundamental differences are described at [20]-[21], above. Contrary to the last sentence of the above submission, cl 17 is to be construed as “promising to provide financial accommodation (ie a loan) to Miluc’s customers (Water Corporation WA), instead of Miluc itself” because cl 17 applies in cases where Debtor Funding is selected as the Facility Type and because a promise “to provide financial accommodation to your Customers” is exactly how Debtor Funding is defined in cl 3.

24. [39]

    Clause 13 purports to require that Miluc Civil “comply with all the terms of a Tranche Schedule”. The question arises, what scope of obligations may FC Securities impose upon Miluc Civil by the terms of a Tranche Schedule? Are there any bounds? On my construction of the Agreement, Miluc Civil would be obliged to comply with the terms of a Tranche Schedule to the extent that they may be directed to the provision of Debtor Funding, being the type of Facility that the parties agreed upon by their election in the Facility Particulars.

25. [40]

    Schedule 1 to the Agreement contains the following details for the calculation of Fees and Charges, as provided for in cl 5:

26. [41]

    The definition of Calculations in Annexure A—Terms and Conditions is quoted under cl 16 at [24] above. By force of the definition the above schedule is “an example”. As it is attached to the Agreement and referred to in its operative provisions, Schedule 1 is capable of assisting in the construction of those provisions. However, the line entries in Schedule 1 are not contractually binding in specific terms, either as to type or as to numerical value because they constitute only an example that may be departed from. The various items from which values are nominated in the Schedule are not supported by any clauses that oblige one or other of the parties to pay, deduct or retain the nominated amounts or percentages.

27. [42]

    Mr Shaun Swinton was the head of credit for FC Securities in 2017. He gave evidence that FC Securities varied the Advance Fee down to 1.65% for the course of its dealings with Miluc Civil. The figures in square brackets in the Rate column of the table above did not appear in the Agreement as executed. They have been inserted for ease of reference and to acknowledge Mr Swinton’s evidence.

28. [43]

    Schedule 2 to the Agreement is a “Form of Tranche Schedule” in which illustrative figures have been inserted, based upon the Fees and Charges in Schedule 1. Schedule 2 is not referred to in any of the 30 clauses quoted above or in Annexure A—Terms and Conditions. There is no clause that authorises FC Securities to issue a Tranche Schedule under cll 12 and 13 with content such as that which appears in Schedule 2. The following are material extracts from the schedule, with heading numbers added for ease of reference:

29. [44]

    In dealings with Miluc Civil relating to its invoices to the Water Corporation, if FC Securities’ should issue and act upon a combined Tax Invoice and Tranche Schedule on the pattern of Schedule 2, the effect would be as follows:

    1. (1)

       In respect of an invoice issued by Miluc Civil for, say, $10,000, FC Securities would pay to Miluc Civil $7,505, being 80% of the invoiced amount less an Advance Fee of 4.95% of the invoiced amount. That payment would be referred to as the Net Tranche Amount. See heading 2 above.

    2. (2)

       The Water Corporation would pay the full invoice amount to FC Securities’ related corporation, the Processing Agent – presumably pursuant to a direction from Miluc Civil.

    3. (3)

       Provided the invoice was paid by the Water Corporation within 30 days, upon receipt FC Securities would retain 80% of the invoiced amount (of which all but the Advance Fee had earlier been paid to Miluc Civil) plus 2% of the invoiced amount. The 2% is referred to as the Indicative Discount Rate. See heading 5 above.

    4. (4)

       On payment by the Water Corporation to the Processing Agent, 20% of the invoiced amount, less the 2% Indicative Discount Rate, would be paid out to Miluc Civil. The amount of that payment in this example would be $1,800, referred to in Schedule 2 as the Security Amount. See heading 3 above.

30. [45]

    The scheme of Schedule 2 assumes that Miluc Civil would direct the Water Corporation to pay the invoice amount to FC Securities’ related corporation, the Processing Agent. It does not assume or depend upon assignment of the Debt by Miluc Civil to either FC Securities or the Processing Agent. The economic effect of implementing the scheme of Schedule 2 would be that Miluc Civil would receive a form of financing of a principal amount of $8,000, for a term of 30 days, at the cost of an Advance Fee (4.95% of $10,000) and an Indicative Discount Rate (2% of $10,000). That equates to 8.6875% of $8,000 for 30 days or 105.7% per annum. If the Advance Fee were to be charged at 1.65% the cost of this finance would be reduced to 4.5625% for 30 days or 55.5% per annum. The amount advanced by FC Securities to Miluc Civil, 30 days ahead of the due date of the invoice issued to the Water Corporation, would be less than 80% of its invoice but the percentage fees and charges in Schedule 2 would be calculated on the full amount of the invoice.

31. [46]

    The operative provisions of the Agreement provide no warrant for FC Securities to issue Tranche Schedules on the pattern of Schedule 2, or to make payments to Miluc Civil, or to charge that company fees or interest, or to make deductions, or to require repayments. The Form of Tranche Schedule in Schedule 2 does not reflect, in any respect, any part of the Agreement constituted by the 30 clauses quoted above or the Terms and Conditions in Annexure A to the Agreement. The Terms and Conditions are for the most part expressed in general terms and do not alter or qualify the 30 clauses by which the contractual rights and obligations of FC Securities and Miluc Civil are defined.

32. [47]

    I do not accept a construction of the Agreement whereby Schedule 2 is to be treated as defining the scope of obligations that FC Securities may impose upon Miluc Civil by issuing a Tranche Schedule. That approach would result in FC Securities being able to displace entirely, by the issue of such a Schedule, both the Debtor Acquisition and the Debtor Funding alternative models of financing for which the 30 operative clauses provide. It would enable FC Securities unilaterally to substitute a radically different model, creating rights and obligations that are nowhere described in the Agreement, other than in Schedule 2 itself. Such a profound addition to or modification of the operative provisions is not achieved by a schedule that is merely attached to the Agreement, without reference elsewhere in the document to its existence, let alone reference to any operative effect that it is intended to have. As can be seen from the extracts of Schedule 2 quoted above, it refers to a fictional Merchant, a fictional Customer and a fictional Customer Invoice. Although the title of Schedule 1 is, in part, “Tranche Schedule,” the fictional example cannot reasonably be construed as an elaboration of what the parties agreed might be contained in a Tranche Schedule issued under cll 12 and 13. In order to be validly issued in accordance with those clauses, a Tranche Schedule would have to give effect – and only give effect – to substantive obligations to be found in the 30 operative provisions, according to the Facility Type chosen.

Transactions purportedly effected under the Agreement

1. [48]

   Mr Swinton gave evidence that Mr Gosatti was provided with login information and a password in order to access Miluc Civil’s account on FC Securities’ online System. To obtain finance in respect of an invoice issued to the Water Corporation, he would “select a button called ‘create transaction’ under the Debtor Funding Facility Agreement”. This would take him to another webpage where he could enter the invoice number and the ABN of the Customer. Mr Swinton said that these details:

2. [49]

   According to Mr Swinton’s evidence there would then “drop-down” an “invoice upload feature”. This would enable Mr Gosatti to upload to the website his company’s invoice to the Water Corporation. Mr Swinton said that in his understanding the uploading of the invoice constituted the uploading and entering of information about the Customer and Customer Agreement as required by cll 7 and 8. He gave these answers:

3. [50]

   Clause 9 stipulates a prerequisite to the approval of the Customer Agreement. The prerequisite is significant to the operation of subsequent clauses because it is the step by which the Customer would signify its agreement that the relevant invoice is payable to Miluc Civil and that the Water Corporation will either accept an advance from FC Securities to fund payment of the invoice (Debtor Funding) or that it acknowledges assignment of the debt to FC Securities (Debt Acquisition). The effect of Mr Swinton’s evidence is that this prerequisite was not fulfilled, throughout the relevant course of dealings in 2017.

4. [51]

   Mr Swinton said that when a “sample calculation” was displayed after Mr Gosatti had uploaded the customer invoice details, the System would enable him to “hit submit and continue”. Thereafter FC Securities’ credit team would review the information that he had submitted online and treat it as a “tranche request”. If approved, Miluc Civil would be notified accordingly by email. When this evidence was led from Mr Swinton, counsel framed the questions as if FC Securities’ actions corresponded with cl 10 of the Agreement. The actions described by the witness bear no relationship to cl 10. Further, as the prerequisite in cl 9 was not observed, the whole exercise of entering and uploading data that took place as Mr Swinton explained was concerned with invoices to Miluc Civil’s Customer, not with Customer Agreements as referred to in cl 8. The agreement was not followed or implemented. For ease of reference, I repeat definition of the latter term:

5. [52]

   To substantiate the debt of Miluc Civil the plaintiff tendered three documents, each entitled Tranche Schedule and Tax Invoice. These follow the pattern of Schedule 2 to the Agreement. They concern three separate amounts paid to Miluc Civil in relation to three invoices that the company had rendered to the Water Corporation. The essential parts of FC Securities’ Tranche Schedule in respect of funding for Miluc Civil’s invoice No 935 to the Water Corporation are as follows, with heading numbers added for ease of reference:

6. [53]

   FC Securities’ Tranche Schedules for the two other payments to Miluc Civil that are in issue in these proceedings followed the same format. They concerned Miluc Civil’s invoice No 938 for $401,733.20, issued on 29 October 2017 and due on 29 November 2017, and invoice No 941 for $454,539.25 issued on 29 November 2017 and due on 29 December 2017. In accordance with those Tranche Schedules the amounts advanced by FC Securities to Miluc Civil were as follows:

7. [54]

   According to the schedules, the principal amounts repayable by Miluc Civil (being the Tranche Amount under heading 5 in each schedule and not including the Discounting Charge) and the dates on which those amounts were due are as follows:

8. [55]

   By its conduct, Miluc Civil may have accepted funding upon the terms of the Tranche Schedules issued to it. The company may have become liable to make repayments to FC Securities in accordance with the Schedules, in the principal amounts tabled above. Miluc Civil may also have become liable to pay interest on those amounts, from the due dates, at the rate of 0.1% per day specified in the Facility Particulars attached to the Agreement. However, assuming that to be so, no part of any of those liabilities of Miluc Civil could be said to have arisen pursuant to the terms of the Agreement, for the reasons given at [46]-[47] above.

Scope of the guarantee

1. [56]

   In addition to cl 27, the defendants’ obligations as guarantors are more fully spelt out in par 9 of the Terms and Conditions at Annexure A, as follows:

2. [57]

   Neither cl 27 of the principal provisions of the Agreement nor cl 9 of Annexure A gives rise to an obligation of the guarantors to indemnify FC Securities or its assignee, the plaintiff, against the defaults of Miluc Civil with respect to obligations it assumed under the Tranche transactions, which were entered into beyond the scope of the Agreement in respect of which the guarantee was given. The plaintiff submits that cl 9(d), by deeming the defendants to be principal obligors, is effective to make them liable for debts assumed by Miluc Civil under variations to the Agreement. It is submitted that the parties varied the Agreement by conduct. It has not been shown that the defendants, in the capacity of guarantors, were parties to such conduct. Further, I do not accept the characterisation of what occurred between the principal creditor and principal debtor as variations of the Agreement. The alleged debt arose from a course of dealing that took place outside the field of operation of the Agreement and wholly disregarded it rather than varied it.

Issue (2): accrual interest after the winding up of Miluc Civil

1. [58]

   The plaintiff alleges that Miluc Civil’s contractual obligation to pay 0.1% per annum on any overdue amount under the Tranche Schedules arises from a combination of cl 23, the definition of Arrears Rate par 14.1 Annexure A and the entry “Arrears Rate: 0.1% per day” in the Facility Schedule. If, contrary to my conclusion, the principal debts of Miluc Civil tabled at [54] above arise under the Agreement, and interest at 0.1% per day also arises thereunder, then the defendants as guarantors are liable to pay the interest so long as the principal is outstanding. The continuing accrual of interest, as an unpaid obligation of Miluc Civil, was not halted by the winding up of the company. Miluc Civil’s default and the guarantors’ liability in respect of it have continued to mount. The defendants cited no legal authority for the contention that the liability for unpaid interest ceased to accrue with the winding up and I know of no such authority.

Issue (5): the defendant’s general pleading of unconscionable conduct

1. [59]

   Paragraphs 9 and 10 of the defence make no reference to s 12CA or s 12CB of the Australian Securities and Investments Commission Act 2001 (Cth). The pleading must be taken to invoke only the general law concerning unconscionable conduct, as expounded in such cases as Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447; [1983] HCA 14 and Kakavas v Crown Melbourne Limited (2013) 250 CLR 392; [2013] HCA 25.

2. [60]

   The particulars of unconscionable conduct provided in par 9 of the defence have either not been proved or are not sufficient to engage the Court’s jurisdiction to grant relief. As to particular a, I find that the guarantors were not denied an opportunity to obtain independent legal advice. By the introductory words immediately preceding the guarantee provision in Annexure A—Terms and Conditions, quoted at [56] above, the defendants were expressly invited and encouraged by FC Securities to obtain independent legal advice. It is true that they were not “required” to do so but that provides no support for the allegation of unconscionable conduct. As to particular b in par 9 of the defence, the defendants have not identified any “limit of the guarantee” or “adverse matters which [were] unknown to [them]”. As to particular c, consideration was given for the guarantors’ promises, namely, FC Securities’ assumption of the obligation to provide finance to the guarantors’ company, in accordance with one or other of the Facility Types identified in the Agreement.

3. [61]

   If, contrary to my conclusion, the defendants have become liable under the guarantee for moneys owing by Miluc Civil as a result of its transactions with FC Securities in 2017, they have not established an entitlement to be relieved of such liability on the grounds of unconscionable conduct of FC Securities.

Issue (6): notice of the assignments

1. [62]

   Paragraph 13.10 of Annexure A to the Agreement is in these terms:

2. [63]

   That provision is consistent with s 170(1)(b) of the Conveyancing Act 1919 (NSW), which provides that any notice required under that Act shall be sufficiently served “if left, or sent by post to the last known residential or business address in or out of New South Wales of the person to be served”. Section 12 of that Act provides that an assignment of a debt

3. [64]

   If, contrary to my conclusion, the debts of Miluc Civil arise under the Agreement, then I am satisfied that those debts and the consequent debts of the defendants as guarantors were assigned by FC Securities to Finstro Securities Pty Ltd by a Loan Book Sale Agreement of 31 May 2019. I am satisfied that notice of that assignment was given to the defendants by letter dated 13 April 2022 posted to the defendants on that day, addressed to them at 35 Ash Grove, Duncraig, Western Australia. Finstro Securities Pty Ltd held the assigned debts pursuant to the terms of a trust and from 30 June 2020 it held them on a different trust. The change of trust did not affect the legal title. Although an instrument was executed to reflect the change, it is of no consequence for present purposes. With effect from July 2020, Finstro Securities Pty Ltd retired as trustee of the relevant trust and the plaintiff was appointed in its place. At that time an assignment of all debts arising under the Agreement was effected from Finstro Securities Pty Ltd to the plaintiff. Notice of that assignment was given to the defendants by letter dated 21 April 2022 posted to the defendants that day, addressed to the same address at Duncraig, Western Australia.

4. [65]

   The address to which the notices of assignment were sent was as recorded in the Facility Particulars to the Agreement. I accept Mr Swinton’s evidence about how those particulars were entered by Mr Gosatti on FC Securities website and “populated” into the Agreement. On that evidence I am satisfied that 35 Ash Grove, Duncraig is the address notified to the plaintiff by the guarantors. Both defendants deposed that they ceased to reside at that address from about August 2020 and that they have not had access to the property since that time. Be that as it may, they gave no evidence of having notified FC Securities of any change of address prior to 13 or 22 April 2022. Accordingly, when the notices of assignment were served by post, 35 Ash Grove, Duncraig was the address “most recently notified” for the purposes of par 13.10 of the Terms and Conditions. Both defendants denied having received the notices in April 2022. They deposed that they were unaware of the notices until they saw them attached to an affidavit of Ms Wazir affirmed on 23 August 2022, filed in the proceedings on behalf of the plaintiff. Their lack of awareness is irrelevant to the sufficiency of service in view of the operation of par 13.10 of Annexure A, s 170 of the Conveyancing Act and s 160(1) of the Evidence Act 1995 (NSW).

5. [66]

   Independently of the sufficiency of the notifications that were given by posting the letters of 13 and 22 April 2022, the requirement of notice under s 12 of the Conveyancing Act was satisfied by service upon the defendants of the amended statement of claim in these proceedings: Grizonic v Suttor [2011] NSWSC 471 at [30] (Brereton J). By either or both of those forms of notification, the sequential assignments were perfected in law.

Orders

1. [67]

   In accordance with these reasons the following orders will be entered:

   1. (1)

      Verdict and judgment for the defendants.

   2. (2)

      The plaintiff is to pay the defendants’ costs of the proceedings.