JURISDICTION	:	SUPREME COURT OF WESTERN AUSTRALIA 

TITLE OF COURT	:	THE FULL COURT (WA) 

CITATION	:	GHIRARDI & ANOR -v- ALLREGAL CORPORATION PTY LTD & ORS [2001] WASCA 366 

CORAM	:	ANDERSON J
STEYTLER J
TEMPLEMAN J 

HEARD	:	17 OCTOBER 2001 

DELIVERED	:	23 NOVEMBER 2001 

FILE NO/S	:	FUL 36 of 2001 

BETWEEN	:	PATRICK JOHN GHIRARDI
First Appellant (First Defendant)
 
JOANNE ELIZABETH GHIRARDI
Second Appellant (Second Defendant)
 
AND
 
ALLREGAL CORPORATION PTY LTD (ACN 090 571 350)
First Respondent (Plaintiff)
 
RODNEY JOHN CHAPMAN
Second Respondent (First Third Party)
 
ELIZABETH MARY CHAPMAN
Third Respondent (Second Third Party)
 
BRUCE ALEXANDER CHAPMAN
Fourth Respondent (Third Third Party)
 
IAIN LAWLESS
Fifth Respondent (Fourth Third Party) 

Catchwords:
Trade practices - Securities - Guarantee and indemnity provided by several co­sureties - Collateral mortgage securities provided by one co­surety - Default - Assignment of debt to co­surety who provided mortgage - Release of that co­surety and discharge of mortgage - Effect on obligations of other co­sureties - Misleading and deceptive conduct - Creditor bank's duty to advise co­sureties as to bank's entitlement to release one co­surety and assign debt to that co­surety

Contract - Chose in action - Assignment - Rule that assignee takes subject to equities - Applicability of rule where chose may be declared void under fair trading legislation 
Legislation:
Australian Securities and Investments Commission Act 1989 (Cth)
District Court Rules, O 6 r 11 
Property Law Act 1969, s 20
Trade Practices Act 1975 (Cth) , s 87(2)(a) 
Result:
Appeal dismissed 
Category:    A 

Representation:
Counsel:
First Appellant (First Defendant)		:	Mr R J L McCormack
Second Appellant (Second Defendant)	:	Mr R J L McCormack
First Respondent (Plaintiff)				:	Mr M L Bennett
Second Respondent (First Third Party)	:	 No appearance
Third Respondent (Second Third Party)	:	 No appearance
Fourth Respondent (Third Third Party)	:	 No appearance
Fifth Respondent (Fourth Third Party)	:	 No appearance 
Solicitors:
First Appellant (First Defendant)		:	Paynes
Second Appellant (Second Defendant)	:	Paynes
First Respondent (Plaintiff)				:	Bennett & Co
Second Respondent (First Third Party)	:	 No appearance
Third Respondent (Second Third Party)	:	 No appearance
Fourth Respondent (Third Third Party)	:	 No appearance
Fifth Respondent (Fourth Third Party)	:	 No appearance 

Case(s) referred to in judgment(s):

Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337
Re Harry Simpson & Co Pty Ltd [1964] NSWR 603
Southern British National Trust Ltd (In Liq) v Pither (1937) 57 CLR 89

Case(s) also cited:

Commonwealth Bank of Australia v Mehta (1991) 23 NSWLR 84
Cordinup Resorts  Pty Ltd v Terana Holdings Pty Ltd (1997) 143 FLR 18
Crisp v Australia & New Zealand Banking Group (1994) ATPR 41-294
Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87
Gould v Vaggelas (1985) 157 CLR 215
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 79 ALR 83
Henville v Walker (2001) 182 ALR 37
Kabwand Pty Ltd v National Australia Bank Ltd (1989) ATPR 40-950
Webster v Lampard (1993) 177 CLR 598
Wheatley v Bower [2001] WASCA 293 

1	ANDERSON J:  This is an appeal from a judgment delivered by a Judge of the District Court on 22 February 2000 allowing an appeal from a Deputy Registrar of that Court whereby the Deputy Registrar dismissed an application by the first respondent for summary judgment.  The Judge, Groves DCJ, ordered that summary judgment be entered against the present appellants in favour of the first respondent.  By this appeal, the appellants seek to restore the Deputy Registrar's decision to dismiss the application for summary judgment.
2		The action arises out of security arrangements entered into with respect to a borrowing from the National Australia Bank.  The facts are as follows.
3		In late 1997, Mr Iain Lawless, Mr Bruce Chapman and the appellants decided to start up a restaurant business in partnership at 57 Bayview Terrace, Claremont.  This business was to be owned by their family trusts.  The trustees of these family trusts were Ghirardi Restaurant Pty Ltd (the appellants' company) and No Salt Required Pty Ltd which was the trustee of the family trusts of both Mr Lawless and Mr Chapman.
4		Bank finance was required and the National Australia Bank was approached for an overdraft facility.  A facility up to $150,000 was offered, subject to the provision of securities.  The securities included debenture charges given by the two trustee companies, and personal guarantees.  The guarantees were given in the form of a document entitled "Guarantee and Indemnity" executed by the two trustee companies, the appellants (Mr and Mrs Ghirardi), Mr Lawless and Mr Bruce Chapman.  The parents of Mr Bruce Chapman, Mr Rodney Chapman and Mrs Elizabeth Chapman, also executed the guarantee and indemnity.  The bank also took a mortgage from Mr and Mrs Chapman over a property which they owned at Port Bouvard.  This mortgage was taken as security for their personal guarantees.  Special provisions were inserted in the security documents limiting Mr and Mrs Chapman's liability to the limit of their liability under the mortgage.  In other words, Mr and Mrs Chapman put up that property as collateral security and the bank agreed not to pursue them beyond realisation of that security.  
5		Mr and Mrs Chapman had no interest in the business.  It would appear that they joined in the security arrangement to assist their son, Bruce.
6		On the same date that the guarantee and indemnity was executed, another document styled "Deed on Securities for 57 Bayview Terrace, Claremont" was executed.  By this deed, everyone (except the bank, which was not a party) agreed that the exposure of Mr and Mrs Chapman as co‑sureties would be limited to the sum of $102,500 and that if, pursuant to the security arrangements, Mr and Mrs Chapman were called upon by the bank to pay any money in excess of $102,500, the other parties would be liable to Mr and Mrs Chapman for the difference.  Furthermore, it was provided that within two years of the execution of the deed the other parties would "cause the Bank to discharge" the mortgage given by Mr and Mrs Chapman.
7		The restaurant commenced to trade in July 1998.  The business was unable to earn enough to pay running costs.  In December 1999, when the overdraft was fully drawn, Mr and Mrs Chapman decided to take steps to protect their interests as co‑sureties.  They paid out the overdraft, withdrew their guarantee and obtained a discharge of the mortgage over the Port Bouvard property.  They arranged for an assignment from the bank to their nominee (the first respondent Allregal Corporation Pty Ltd) of the debt and the benefit of the remaining securities.  Allregal Corporation Pty Ltd is a trustee company controlled by Mr and Mrs Chapman and of which they are directors.  
8		Notices of the assignment were given pursuant to s 20 of the Property Law Act 1969 in which the debt was stated to be $151,110 plus some additional bank charges.  Payment of this amount was demanded by the first respondent in its capacity as assignee from the bank.  The demand was initially made only on the trustee company, Ghirardi Restaurant Pty Ltd, but when that demand was not met, demand was made on the appellants (that is, Mr  and Mrs Ghiradi) personally.  When that demand was not met, these proceedings were commenced.
9		The appellants filed a defence which was essentially to the effect that the release by the bank of the securities provided by Mr and Mrs Chapman operated to release the appellants from all liability under their guarantees.  The Deputy Registrar (Deputy Registrar Hewitt) did not consider this defence had any merit.  However, he did not think it was clear on the material before him that there was a default under the lending arrangements which would have entitled the bank to make demand for payment of the debt.  Therefore, he considered it to be arguable that Mr and Mrs Chapman, as mere assignees, were in no better position.  He also expressed some reservations about the effectiveness of the formal notice of assignment.  On the evidence before him he thought that it gave notice of an assignment which had not yet happened.  It was on this basis that he declined to give summary judgment to the first respondent.  
10		The appeal from Deputy Registrar Hewitt to Groves DCJ in the District Court is covered by O 6 r 11 of the District Court Rules.  The appeal is by way of a hearing de novo.  Additional evidence was presented to Groves DCJ which overcame the difficulties adverted to by the Deputy Registrar.  However, the appellants' main point mentioned above, namely, that it was a fundamental part of the security arrangement that the bank would not release Mr and Mrs Chapman from their obligations as co‑sureties, was re‑argued.
11		Groves DCJ held that there was no arguable defence.  I agree with that conclusion, although for slightly different reasons. 
12		There is nothing in the deed of guarantee expressly obliging the bank not to release Mr and Mrs Chapman from their securities.  It is quite impossible to imply any such term.  As Groves DCJ pointed out at par 22 of his judgment, the express terms of the guarantee provide that the bank may release any security and may compound or compromise its claim upon any co‑surety without affecting the obligation of the other co‑sureties: Cl 4.1(d) and 13.2(c)(ii) and (iii).
13		Mr McCormack sought to have recourse to the doctrines relating to collateral contracts, but I think in the end he really abandoned that line of argument, and rightly so.  The law does not allow a party to rely on a collateral arrangement which is inconsistent with the terms of the principal contract:  Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1982) 149 CLR 337 at 347.  The terms which are contended for on behalf of the appellants as terms of the alleged collateral contract, namely, that the bank would not release or discharge Mr and Mrs Chapman, are directly contradicted by the express terms of the guarantee which permit the bank to release or discharge any co‑surety.
14		Mr McCormack submitted that, if it was established at trial that the appellants had executed the guarantee and indemnity in the belief that the bank would not or could not release Mr and Mrs Chapman from their obligations as co‑sureties and if that belief had been contributed to by misleading or deceptive conduct of the bank, the appellants would have available to them the statutory remedies provided by s 87(2)(a) of the Trade Practices Act 1975 (Cth) or by the analogue of that section in whichever of the Australian Securities and Investments Commission Act 1989 (Cth) and/or the Corporations Law was applicable to the case.  He submitted that these remedies included setting aside the guarantee and indemnity ab initio.  He submitted that if the guarantee and indemnity was liable to be set aside as against the bank under the provisions of one or other of the statutes on the ground of misleading or deceptive conduct, then, on the principle nemo dat quod non habet, the bank's assignee (that is, the first respondent) was in no better position.
15		The general rule is that the assignee of a chose in action takes subject to all equities affecting the assignor.  If the bank had obtained the appellants' execution of the guarantee and indemnity by fraud, or otherwise in circumstances rendering the deed liable to be rescinded, the first respondent as assignee of the guarantees would be in no better position and it would be no answer for the first respondent to say that it was a bona fide purchaser for value of the benefit of the guarantees.  It is a particular application of the nemo dat quod non habet rule.  There is an instructive discussion of the subject and of the leading authorities which support these propositions in Meagher Gummow and Lehane, Equity:  Doctrines and Remedies (3rd ed) par 697 ‑ 699.  See also Southern British National Trust Ltd (In Liq) v Pither (1937) 57 CLR 89, especially per Dixon J at 110 ‑ 112.
16		One question is whether the rule nemo dat quod non habet extends to cases in which the jurisdiction to set aside the impugned transaction derives not from equitable or common law rules relating to rescission, but exclusively from statute.  Mr McCormack submitted that it was arguable that, if a contract is liable to be set aside under a statute such as the Trade Practices Act, the Corporations Law or the Australian Securities and Investments Commission Act for a contravention of a provision of the applicable Act, an assignee of the benefit of the contract takes subject to the right of a competent party to claim that it be set aside.  Our attention was not drawn to any direct authority for that proposition but I would accept that the proposition is at least arguable as being a legitimate extension of the nemo dat quod non habet principle.  It has been held that, in applying the rule that an assignee of a chose in action takes subject to all the equities, the word "equities" is to be given a wide meaning.  Re Harry Simpson & Co Pty Ltd [1964] NSWR 603 at 605.  
17		It may be observed in passing that the rule can be modified or ousted by agreement.  If the contracting parties agree that the contract may be assigned free from such equities, this can be done:  Meagher Gummow and Lehane (op cit) par 6101.  In this case, the guarantee and indemnity contains such a provision.  Clause 26 provides:
"The Bank may assign its rights under this guarantee and indemnity free of any equity, set‑off or counterclaim."
18		Counsel for the first respondent, Mr Bennett, did not argue that the assignment to the first respondent was an assignment "free from all equities".  Mr Bennett was content to submit that there is simply no factual basis to sustain a claim for relief against the bank on the grounds of misleading or deceptive conduct.  He submitted that no such conduct as would give rise to this "equity" is disclosed in the affidavits of the appellants.  In my opinion, this submission must be accepted.  The closest that the affidavits come to making out a prima facie case of misleading or deceptive or unconscionable conduct is par 23 and par 27 of Mr Ghirardi's affidavit in which he deposes:
"23.	I also spoke to Mike Irwin [the bank officer] about the security being provided by Mr Chapman in respect of the guarantee and his wish to have his liability limited…  I told Mike Irwin that it was important to Jo [Mrs Ghirardi] and I that unless specific security was provided by Mr and Mrs Chapman, in respect of the Port Bouvard property, then we (Jo and myself) would not be a party to the deal.  This conversation occurred in July 1998.  Although I cannot presently recall the precise words used by Mike Irwin in his response to me, I recall the substance and the effect of same as being that as far as the bank was concerned he 'acknowledged and accepted this position'
…
27.	At all times, Jo and I understood and believed, before we signed the guarantee, that the NAB would not release or cause the specific security of the Port Bouvard property to otherwise not be available to us, as co‑sureties, in the event that the guarantee was to be called upon."
19		As I understood Mr McCormack's submissions, he did not submit that the bank officer, Mr Irwin, had actually said anything to induce the belief deposed to by Mr Ghirardi in par 27 of his affidavit.  Mr McCormack relied not so much on what is alleged to have been said by Mr Irwin, but on what Mr Irwin did not say.  Mr McCormack submitted that, in all the circumstances known to Mr Irwin, it was misleading or deceptive not to positively warn Mr Ghirardi that, in the terms of the deed of guarantee and indemnity, the bank could release Mr and Mrs Chapman from their obligations without releasing the other co‑sureties.
20		With due respect, there is no merit in this submission.  It may be at least arguable that where one co‑surety tells the lender that he agrees to execute a guarantee only if another person also agrees to do so, and the security which is presented for execution provides that the lender may release any co‑surety without affecting the obligations of the other co‑surety, failure to draw the attention of the first co‑surety to that provision may be a misleading or deceptive non‑disclosure.  However, this question is not reached in this case, because in this case there is no evidence of this kind of non‑disclosure.  The evidence is quite clear that the bank provided the security document to the appellants to be read by them and recommended that the appellants obtain expert independent legal advice before they executed it.  The evidence is quite clear that the appellants did obtain independent legal advice as to the effect of the document.  Attached to the guarantee and indemnity are certificates signed by the appellants' solicitor to this effect and certificates signed by the appellants themselves to the effect that the appellants were fully aware of the nature of the document and of the risks associated with signing it.  
21		The appellants must be taken to have been made fully aware of the terms of the guarantee and indemnity, that the benefit of it could be assigned free of all equities to Mr and Mrs Chapman at any time and that the bank could, at any time, release Mr and Mrs Chapman from their obligations as guarantors without affecting the obligations of the other guarantors.
22		I would dismiss this appeal.
23	STEYTLER J:  I have had the advantage of reading the reasons for decision of Anderson J.  I agree with them.
24	TEMPLEMAN J:  I have read in draft the reasons published by Anderson J.  I agree with those reasons and the orders proposed by his Honour.  There is nothing I wish to add.