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Cite as: April 2012 86 (04) LIJ, p.63

Guarantee of debt where borrower fails to execute security documents in favour of lender – application for stay of judgment by guarantor

Seifert v Chaudhary [2012] VSCA 17 (unreported, 9 February 2012, Weinberg JA and Kyrou AJA, S APCI 2011 0162).

The applicant sought a stay of execution of a judgment of some $1,380,516.90 and costs which the respondent had obtained on a summary judgment application in the County Court.

The applicant had been sued upon guarantee given by him in respect of a loan made by the respondent to a company, RJ & RC Electrical Solutions Pty Ltd (the company), then controlled by the applicant.

The loan agreement with the company provided that the company would give two securities over assets owned by it to the respondent to secure the money advanced. No security was ever executed. It appears that by the time the respondent sought to have the security documents executed by the company, the company was no longer in the applicant’s hands.

The applicant sought a stay of the judgment entered against him pending appeal.

Weinberg JA delivered the principal judgment.

The Court noted:

“The principles that govern the grant of a stay pending appeal are well settled. Basically, in a case such as this, the applicant for the stay must satisfy the Court that the appeal enjoys reasonable prospects of success, that it will be rendered nugatory if a stay is not granted, and that the grant of a stay will not cause serious injustice to the respondent. It goes without saying that the desire to avoid bankruptcy is not, of itself, sufficient to warrant the grant of a stay”. [14]

The applicant’s counsel conceded that it was necessary for the applicant to show “special or exceptional circumstances”.

It was submitted for the applicant that the failure by the respondent to procure execution of the securities was such as to avoid the guarantee. Reference was made to the unreported decision of the New South Wales Court of Appeal in Sonntag v Graziano (unreported, New South Wales Court of Appeal, Mahoney, Clarke and Sheller JJA, 18 April 1994) where the Court said:

“It is, of course, clear that where a transaction of which a guarantee is part envisages that a security will be given for the performance of the principal obligation guaranteed and that [if] security is not given, prima facie the guarantee is avoided: see Halsbury’s Laws of England Vol 20, para 282 and the cases there referred to; see also Phillips and O’Donovan The Modern Contract of Guarantee (2nd ed) (1992) pp343-345; Marks and Moss Rowlatt on the Law of Principal and Surety (4th ed) (1982) pp185-186. The matter was discussed in Williams v Frayne [1937] HCA 15; (1937) 58 CLR 710 and in this Court in Tricontinental Corporation Ltd v HDFI Ltd (1990) 21 NSWLR 689”. [3]

This was not in dispute as a statement of principle. The fact was, however, the applicant terminated his association with the company at a time when he was aware that the securities had not been given. By his own actions he had created a situation where the securities could not be given.

It was noted that the applicant had the onus in relation to an application for a stay. The Court said:

“As regards Mr Seifert’s argument that his appeal will be rendered nugatory if he is denied a stay, it is sufficient to say simply that there is no proper foundation for that submission. It is by no means clear, on the material before this Court, that even if Mr Seifert is bankrupted, his trustee would not, if persuaded that the appeal had merit, pursue it. That is particularly so since there is evidence that funding for an appeal would be available from a third party associated with Mr Seifert.

“I should add that the evidence suggests that Mr Seifert has, until very recently, been unforthcoming, and uncooperative, in providing information about his financial position”. [30]-[31]

The application was refused.




PROFESSOR GREG REINHARDT is executive director of the Australasian Institute of Judicial Administration and a member of the Faculty of Law at Monash University, ph 9600 1311, email Gregory.Reinhardt@law.monash.edu.au.

The numbers in square brackets in the text refer to the paragraph numbers in the judgment. The full version of this judgment can be found at www.austlii.edu.au.

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