Hawkins v Bank of China
(1992) 26 NSWLR 562(Judgment by: Sheller JA) Court:
Judges:
Gleeson CJ
Kirby P
Sheller JA
Subject References:
Companies
Directors and officers
Personal liability
For "debts incurred"
Company executing guarantee
Contingent liability for liquidated amount
Whether debt incurred
Winding up
Conduct and incidents of liquidation
Liability of officers for misfeasance
Liability for "debts incurred"
Company executing guarantee
Contingent liability for liquidated amount
Whether debt incurred
Guarantee and Indemnity
Guarantee
Construction and effect
Nature of obligation
Whether to pay unliquidated damages or liquidated debt
When "debt incurred"
Legislative References:
Companies (New South Wales) Code - s 556(1)(a); s 556(1)
Judgment date: 1 May 1992
Judgment by:
Sheller JA
SHELLER JA . I have had the benefit of reading the judgments prepared by the Chief Justice and the President. I agree that the appeal should be dismissed with costs. I can state my reasons shortly.
At the time Equiticorp International plc (the Covenantor) entered into the guarantee in January 1989 the two related companies described in the guarantee as "the borrower" jointly and severally owed Bank of China (the lender) $5 million in respect of financial accommodation provided to them. It is this amount which the lender seeks in reliance upon s 556 to recover from the defendants, two directors of the covenantor and a person who took part in its management. In Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 at 254-256, Mason CJ identified the class of guarantee where under a guarantor guarantees the payment of a debt. In my opinion the language of this guarantee and particularly cl 2 pointed ineluctably to its being a guarantee in this class. Upon its execution the covenantor incurred a debt in the sense of an obligation to pay a liquidated amount contingent upon demand by the lender after the borrower's default in performance or observance of any of its obligations in respect of the financial accommo dation. For the reasons given by the Chief Justice and the President I agree that in the expression "incurs a debt" in s 556(1)(a) of the Companies (New South Wales) Code "debt" includes a contingent debt. In my opinion on execution of this guarantee the covenantor incurred such a debt.
It is not necessary in order to determine this appeal to consider other situations in which companies enter into guarantees as for example a guarantee entered into prior to any financial accommodation being provided to the proposed borrower. Nor is it necessary to consider the position generally in respect of all moneys guarantees. In my opinion the answer to the question of whether at the time a guarantee is entered into a debt is incurred or, if not, whether a debt is incurred at some later point of time within the meaning of the relevant legislation will depend upon the facts of the particular case.