Australian Postal Corporation v Oliver
[2006] VSC 318
•6 September 2006
| IN THE SUPREME COURT OF VICTORIA | Not Restricted | |
AT MELBOURNE
COMMERCIAL AND EQUITY DIVISION
No. 4900 of 2005
| AUSTRALIAN POSTAL CORPORATION | Plaintiff |
| v | |
| PHILLIP ERIC JOHN OLIVER & ORS | Defendants |
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JUDGE: | HANSEN J | |
WHERE HELD: | Melbourne | |
DATE OF HEARING: | 22 and 23 August 2006 | |
DATE OF JUDGMENT: | 6 September 2006 | |
CASE MAY BE CITED AS: | Australian Postal Corporation v Oliver | |
MEDIUM NEUTRAL CITATION: | [2006] VSC 318 | |
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Guarantee and indemnity – Given by a director – Revocable on one month’s notice – Alleged oral term that guarantor discharged on ceasing to be a director – Whether a term or a collateral agreement - Whether guarantor discharged on ceasing to be a director – Oral notice of resignation as director, whether given and effect – Whether estoppel by reliance on representation inducing omission to give notice of resignation – Whether guarantor discharged by variation of terms between creditor and debtor – Whether guarantor discharged by prejudicial conduct of creditor – Whether guarantee discharged by a later guarantee by different guarantors.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R L Moore | Holding Redlich |
| For the Second Defendant | Mr M J Stirling | Trumble Szanto |
HIS HONOUR:
The plaintiff, Australian Postal Corporation, seeks judgment for $560,927.52 against the second defendant, Malcolm Richard Kenneth Freeman, under a guarantee in writing dated 10 September 1999 of the debts of World Class Pty Ltd trading as World Class Mail (I refer to both as “World Class”). Freeman admits that he signed the guarantee, that the amount claimed was owed by World Class, and that the plaintiff made demand of him for payment under the guarantee. He contends that for several reasons he is not liable under the guarantee. Before referring to those reasons I refer to the background facts and circumstances.
Part of those background facts include that when the proceeding was commenced there were two other defendants, Phillip Eric John Oliver and John Francis Hayes, who were also sued as guarantors to the plaintiff of the debts of World Class. Initially Oliver signed the guarantee upon which Freeman is sued, but later he and Hayes signed a guarantee dated 26 March 2004 upon which they were sued for the amount due to the plaintiff. Judgment was entered in default of appearance against each of them, against Oliver on 22 April 2005 and Hayes on 1 June 2005.
Another preliminary matter to mention is that whereas the plaintiff is Australian Postal Corporation, the entity in favour of which Freeman’s guarantee was given was Australia Post. That is a business name under which the plaintiff has traded at all relevant times. Whether or not it be necessary to do so, the parties are agreed that the guarantee was intended to enure for the benefit of the plaintiff and that it should be rectified to reflect that actual agreement and intention of the plaintiff and Freeman. Accordingly I will by consent make an order for rectification. The real issues for determination concern the enforceability of Freeman’s guarantee and to the facts and circumstances pertaining to those issues I now turn. In doing so I will for reasons of simplicity refer to the plaintiff merely as Australia Post or the plaintiff.
The plaintiff is a body corporate established pursuant to the Postal Services Act 1975 and continued by the Australian Postal Corporation Act 1989 (“the Act”).
World Class was incorporated in 1996. It conducted business as a mail house in the course of which it would package and lodge articles of mail for its clients for collection and/or delivery by Australia Post. Australia Post charged World Class, and World Class charged its clients, for the services respectively provided.
World Class conducted its business under an account with the plaintiff. In particular it enjoyed a charge account. The postage payable by World Class for postal services was debited to the charge account. This meant that rather than paying the plaintiff cash for postal services it had a period of credit. The plaintiff’s standard term was for payment in 14 days from the date of issue of a statement of account for the amounts charged therein.
The terms and conditions on which Australia Post provides services are set under the Act. Section 32 of the Act provides that the terms and conditions on which the plaintiff supplies postal services to a person are either those agreed or, so far as there is not agreement, those determined by the plaintiff applicable to the particular service. That is, terms and conditions may be determined for different kinds of postal service or article. In terms and conditions duly made by the plaintiff it is provided that the customer must pay postage and all other fees related to the postal and related services calculated in accordance with the rates and charges published by Australia Post from time to time. As I have mentioned, the quantum of the claim is admitted. No attack is made on the amounts charged to World Class. Finally, while unless otherwise provided postage is payable on lodging an article (cl 14.1), in the case of a charge account postage is deemed to have been paid when it is debited to the charge account (cl 15.3). This is a sufficient reference to the terms and conditions under which World Class availed itself of the services of Australia Post, and was doing so when Freeman commenced employment with, and became general manager and a director and shareholder of World Class on 16 March 1998.
When Freeman commenced with World Class there were two other directors, Oliver and another person who ceased to be a director in November 1998. Oliver was in charge of sales. There were two other employees. Freeman described it as “an all hands on deck operation”.
In the course of his duties Freeman dealt with Paul Michael Davidson who was employed by Australia Post as a credit manager. At relevant times Davidson was responsible for the World Class account. He also dealt with Oliver but primarily it seems with Freeman. Working under Davidson and responsible to him were a number of credit managers one of whom, David McKenna, had day to day responsibility for the World Class account.
In September 1999, in light of a history of World Class not paying Australia Post’s accounts within 14 days, Davidson required the directors, Freeman and Oliver, sign a guarantee of World Class’s debts. They duly signed the guarantee which Davidson provided, and which is dated 10 September 1999.
According to Freeman, Davidson told him that “the guarantee would continue in force so long as I remained a director of World Class”. Davidson denies having made this statement. I deal with this issue below. Freeman also says that Davidson raised the requirement of the guarantee at a meeting on 9 September and that Davidson presented the guarantee to himself and Oliver on the following day, 10 September, at World Class’s office. Davidson does not agree with this sequence of events. There is, however, agreement that there was a meeting on 9 September at which Davidson and McKenna, and Freeman and Oliver were present at which the former requested payment of Australia Post’s statements within the 14 day terms.
The guarantee was expressed to be given by Freeman and Oliver in consideration of Australia Post having, at the request of Freeman and Oliver, agreed to supply World Class Pty Ltd trading as World Class Mail with products and services ordered by it. In the guarantee Australia Post is referred to as “the Company” and World Class as “the Customer”. The guarantee provided as follows, omitting immaterial clauses:
“1.Where any agreement is entered between the Company and the Customer whether simultaneously with the execution hereof or at the subsequent date for the supply of products and services by the Company to the Customer at the Customer’s request, we guarantee to the Company the payment of all moneys due from time to time by the Customer to the Company in respect of the supply of such products and services.
2.The liability of the Guarantors hereunder shall not exceed the limit described in the Schedule hereto, but this agreement shall be a continuing guarantee to the Company for the whole debt contracted by the Customer with the Company in respect of products and services sold and shall not merely be applicable to such amount thereof as shall be co-extensive with the aforesaid limit.
3.This Guarantee shall be enforceable notwithstanding the obligations to the Company by the Customer shall be void, defective or unenforceable for any reason and the Guarantors jointly and severally hereby indemnify the Company against all losses, charges and expenses which the Company may incur or suffer directly or indirectly by reason of having entered into any agreement for the supply of products and services to the Customer.
4.…
5.…
6.The Company may at any time or times, at its absolute discretion and without giving notice whatsoever to the Guarantors or any of them, refuse further credit or supplies of products and services to the said Customer and grant to the Customer or to any drawers, acceptors or endorsers of bills of exchange, promissory notes or other securities received by the Company from the Customer or on which the Customer may be liable to the Company any time or other indulgence and compound with the Customer without discharging or impairing the Guarantors’ liability under this Guarantee.
7.The liability of the Guarantors shall not be affected by the Company granting time to or compounding, or compromising with, or releasing, or granting any indulgence to the Customer in respect of the payment of money or otherwise, or by the forbearance to require the Customer to pay any moneys.
8.In order to give effect to this Guarantee the Guarantors declare that the Company shall be at liberty to act as though the Guarantors were the principal debtors and we the Guarantors hereby waive all and any of our rights as sureties which may at any time be inconsistent with any of the above provisions.
9.This guarantee shall be revocable at any time as to future transactions, by one month’s notice in writing signed by any guarantor (or in the case of death, by any of their respect [sic] personal representatives) but shall continue to apply to all agreements entered between Company and the Customer prior to the expiration of such one month’s notice.
10.…
11.…”
In the schedule to the guarantee the “Limit” was stated to be “The balance outstanding on Bulk Mail Charge Account No. 6119283 and any other charge accounts with Australia Post less any Bank Guarantees or other securities held by Australia Post over the accounts”. In fact the account number 6119283 was the only charge account World Class had with Australia Post and the guarantee was the only security it held over the account.
Following provision of the guarantee World Class continued to avail itself of the services of Australia Post under and by way of the charge account. As before however it did not comply with Australia Post’s trading terms and as before the account required monitoring by the credit officers of Australian Post and discussions with World Class. The position became such that in August 2001 Davidson required World Class to give Australian Post a floating charge over the debtors of World Class. The charge, duly executed, was collected by Davidson from Freeman on 14 August 2001 and duly registered with the Australian Securities and Investments Commission (“ASIC”).
The pattern of trading continued as before, with World Class not paying the amount due on statements in 14 days and the account being managed with ongoing discussions between Australia Post and World Class. In these discussions Freeman would provide Davidson or his assistant credit officer with financial information. The Court Book includes a balance sheet for the World Class Unit Trust, under which the business was conducted, as of April 2002 which showed a deficiency of assets of $17,602.93.
In or about May 2002 Freeman negotiated terms on which to extricate himself from World Class. Although the evidence is somewhat unsatisfactory due to the absence of a signed final agreement, it may be accepted that by the end of June 2002 Freeman had agreed on terms with Oliver. It is sufficient for the purposes of this case to note that the terms included the following.
(a)Freeman would resign as an employee and director of World Class at the close of business on 30 June 2002.
(b)Freeman would continue to provide as security for the business loan/overdraft of World Class with the Commonwealth Bank of Australia his rental property at 27 Cutter Street, Richmond until the loan/overdraft is paid or alternative security is provided. World Class, Oliver and two others guaranteed that the requirement for the security would cease on or before 30 June 2003.
(c)Freeman would receive $40,000 on or before 30 June 2003 for his shareholding by periodic payments to be agreed.
(d)Freeman would acquire from World Class at no cost two motor vehicles.
(e)On receiving the $40,000, and the security on 27 Cutter Street being released, Freeman would transfer his shares to certain named transferees.
(f)Freeman would retain the right to access all business records of World Class as if he were a director until he had transferred his shareholding.
These terms are to be understood in light of the difficult financial circumstances of World Class, that Oliver and others concerned in World Class presumably did not have the financial capacity to provide substitute security to enable the Commonwealth Bank to release Freeman’s security for its advances, and that Oliver and others concerned in World Class could not there and then pay him the $40,000 and any other amount required. In addition, Freeman (and Oliver) had given personal guarantees in connection with leased equipment. In these circumstances it is evident that Freeman retained an ongoing concern in the financial position of World Class. It also explains why he retained his shares and had the right to financial information relating to World Class.
I have not referred to the Australia Post guarantee in the above account of Freeman’s obligations. The reason is that Freeman says that in about late June 2002 he advised Davidson by telephone that he was leaving World Class and resigning as a director as from 30 June 2002. I refer to Freeman’s evidence as to this more fully below. For the moment I note that it is Freeman’s case that this advice was effective to revoke his liability under the guarantee.
Moving forward in the chronology, Australian Post’s monthly statements of account, commencing with that issued on 5 September 2002 (for payment on 19 September 2002), were marked for the attention of Oliver whereas previously they had been for the attention of Freeman. While suggesting that Oliver may have requested that change Davidson was unable to say at whose direction it was made. Davidson added that the credit officer who managed the day to day running of the account – who was Maureen Deer by this time – was responsible for ensuring the account went to the correct addressee, I infer, to the attention of the responsible person. This is one of the matters I take into account in determining whether Freeman advised Davidson that he had ceased to be a director of World Class.
In that respect also I take into account that by a letter on the letterhead of World Class dated 30 July 2002 Freeman gave written notice to the directors of Interact.dm that in view of selling his interest in World Class Pty Ltd he tendered his resignation as a director of Interact.dm effective 30 June 2002. Freeman said that he wrote that letter to facilitate Stephen Green becoming a director and shareholder of Interact.dm. Green was also associated with World Class.
As to Green, it appears from an unsigned minute of a meeting of directors of World Class on 1 July 2002 that it was resolved that the resignation of Freeman was accepted and the appointment of Green as a director of World Class was approved, and that the necessary documents be prepared and lodged with ASIC. The Court Book also contains an unsigned resignation by Freeman and an unsigned consent to appointment by Green. As to the progression or otherwise of these matters, all that is known is that advice that Freeman had ceased to be a director of World Class effective on 15 March 2004 was lodged with ASIC on 1 April 2004. No document was lodged with ASIC concerning Green who was never recorded as a director of World Class in the records of ASIC. The disconformity between what was stated to be resolved and the subsequent action was not explained and tends to erode confidence as to whether the unsigned minute records an actual resolution or whether, if it does, the resolution was reconsidered in some respect. In the absence of better evidence I cannot take the issue further.
It is pertinent to note that earlier, by a notice signed by Oliver, dated 14 October 2002 and lodged with ASIC on 21 October 2002, World Class notified the appointment of Belynda Leigh Oliver as an alternate director for Oliver.
Meanwhile, World Class continued to use the services of Australian Post by means of the charge account and to fail to pay within 14 days of statement. In other words, World Class was always overdue and the account required continual monitoring and management by Australia Post. In this process, as before 30 June 2002, Australia Post would press for payment and consider proposals for payment by World Class.
In the course of this ongoing management of the account, on 4 August 2003 in a conversation in which Davidson referred to the security of the charge and the guarantee of Freeman and Oliver, Oliver told Davidson that Freeman had resigned as a director of World Class and that John Hayes was going to become a new director of World Class. Davidson prepared a fresh guarantee for Hayes to sign, to operate in conjunction with the existing guarantee. Davidson confirmed the discussion in an email to Oliver on 5 August 2003 which referred to attaching a director’s guarantee for completion and return. Oliver responded with advice that he would get “John” to fill it out and send it back that week. That was a reference to John Hayes who became a director of World Class on 15 March 2004, the same day as Freeman’s date of resignation as a director, according to the return of World Class lodged with ASIC.
In fact Hayes did not return the guarantee. I do not know why. In any event, Davidson said that it was not until mid March 2004 that he attended World Class’s premises to provide the guarantee to be signed by Hayes. As noted earlier the guarantee was signed by Oliver and Hayes.
On 1 March 2004 Australia Post and World Class entered into a parcel agreement whereby Australia Post agreed to carry parcels (as defined in the agreement) that originated from or arose as a result of activities carried on by World Class. Pursuant to this agreement parcels were carried by Australia Post between June 2004 and November 2004 for which invoices were rendered for the postage payable which was debited to World Class’s charge account. The amount due under the parcel agreement is part of the overall claim. The greater part of the claim is represented by postal charges incurred between June 2004 and November 2004. As I have mentioned, there is no dispute as to the amounts involved.
It follows from the period in which the subject indebtedness was incurred, but nevertheless should be noted, that the amount outstanding when (on his case) Freeman retired as a director was paid by World Class prior to June 2004.
As 2004 progressed the amount outstanding increased, with Australia Post pressing for payment and Davidson’s superior, Dennis Teen, coming to deal with Oliver. On 30 August 2004 Teen sent Oliver an email with reference to a recent meeting noting that by the end of October the balance outstanding would only be September. That turned out not to be the case with World Class falling behind its payments.
In an internal email on 29 October 2004 Teen recorded that he thought World Class was not solvent and that the matter would come to a head “this coming meeting”. Australia Post determined to deal with World Class on a cash basis.
On 30 November 2004 the directors of World Class appointed administrators to the company. The first meeting of creditors was held on 7 December at which the appointment of the administrators was ratified. On 14 December the administrators gave notice of the second meeting of creditors to be held on 24 December 2004. Davidson received the notice on 14 December 2004.
In their report to creditors the administrators said that World Class could not continue after Australia Post advised it would only trade on a cash on delivery basis. World Class had insufficient cash flow to comply with such terms. Further, there appeared to be a deficiency of assets of $458,077.
On 21 December 2004 Nicholas Andrew Macdonald, legal counsel employed by Australia Post, sent to Freeman a demand for payment of the amount due by World Class. On the same date Australia Post sent a demand for the same amount to Oliver and Hayes under the second guarantee. No payment was made by any of the guarantors.
On 22 December 2004 Freeman telephoned Macdonald. In the course of the conversation, in which Freeman appeared to Macdonald to be upset, Freeman said that he had resigned as a director of World Class about three years ago. Macdonald said to Freeman that his obligations under the guarantee would continue beyond his resignation unless he had been released, and asked Freeman if he had been. Freeman said that he did not know, and that he had sent the letter of demand to his solicitor. Macdonald said to put any issues concerning the demand in writing, and that it was important to respond by 14 January 2005. Freeman did not advise Macdonald that he had an agreement with Davidson that the guarantee imposed liability only for so long as he was a director of World Class, or that this was the purpose and effect of the guarantee.
At their meeting on 24 December 2004 the creditors resolved that World Class be wound up whereupon the administrators became liquidators of the company.
On 7 February 2005 solicitors acting for Freeman, Church Hill Lawyers, wrote to Macdonald seeking a copy of the guarantee, the applicable terms of trade and a printout of the amount owing from 30 June 2002 to 30 December 2004. When received, instructions would be sought from Freeman. On the same day Macdonald replied advising that in the absence of a satisfactory response to the demand the matter had been referred to solicitors to commence litigation.
The proceeding was duly commenced on 3 March 2005.
Finally, on 18 May 2006 the liquidators wrote to Australia Post advising that they had finalised the distribution to priority creditors and accordingly enclosed a dividend of $54,427.24 being the balance of funds remaining from assets subject to Australia Post’s security, which was the charge over book debts.
I turn then to identify the grounds on which Freeman contended that he was not liable under the guarantee. The grounds are:
(a)It was a term of the guarantee as agreed between Davidson and Freeman that the guarantee would only remain in force while Freeman was a director of World Class. The effect of Freeman resigning as a director on 30 June 2002 was that he was thereby discharged from any liability incurred by World Class after 1 July 2002.
(b)Further to (a), Freeman gave Davidson oral notice of resignation in late June 2002.
(c)Australia Post was estopped from denying that the guarantee would only remain in force while Freeman was a director of World Class. The estoppel was based on Davidson having so represented the operation of the guarantee to Freeman, and to Freeman having relied on that representation in not giving written notice under cl 9, thereby acting to his detriment. Furthermore, Freeman told Davidson of his intended resignation in late 2002 and Oliver told Davidson of Freeman’s resignation in August 2003.
(d)The guarantee was discharged:
(i)by variation of the principal transaction without Freeman’s knowledge or consent.
(ii)by conduct of Australia Post prejudicial to Freeman.
(e)There was a collateral agreement between Australia Post and Freeman that Freeman was only liable under the guarantee for debts incurred by World Class while he was a director.
(f)Freeman’s guarantee was discharged by execution of the second guarantee.
(g)Davidson’s representation that the guarantee bound Freeman only while he was a director misrepresented the guarantee or constituted misleading and deceptive conduct by Australia Post which entitled Freeman to avoid the guarantee or to be discharged from liability thereunder.
I note that Freeman also brought a counterclaim. This was not pressed by counsel and it is not necessary to say anything about it.
I now deal with the grounds of defence in the above order.
As mentioned earlier, Davidson and Freeman were in conflict as to whether (as Freeman said) Davidson said that Freeman was liable under the guarantee only while he was a director of World Class. Freeman said that McKenna and Oliver were present when this was said. In view of McKenna and Oliver not having been called as witnesses it is necessary to say something on the matter of witnesses and the evidence.
In the plaintiff’s case evidence was given by Davidson and Macdonald who were cross-examined. In addition a witness statement of Nicholas Carayanis was tendered without the need to call him. Macdonald’s evidence was limited to sending the letter of demand, a conversation with Freeman and subsequent communications as referred to above. Carayanis’s evidence dealt with the parcel agreement.
In his case Freeman was the only witness.
In addition a two volume Court Book was tendered.
In these circumstances there was one witness apiece (Davidson and Freeman) who gave evidence in the area of disputed and critical fact. There were two substantial issues of fact to determine, whether Davidson made the representation alleged and whether Freeman told Davidson of his resignation as a director. The resolution of these issues depended largely on my assessment of Davidson and Freeman in light of the relevant facts and circumstances. As to this it should be recorded that counsel for Freeman abandoned the plea in para 32(b) of the Further Amended Defence and Counterclaim which related to the first issue. This abandonment was sensible as that part of the plea was incomprehensible as drafted.
In submitting that Freeman’s evidence should be preferred his counsel criticised the failure of the plaintiff to call McKenna. It was submitted that McKenna was an important witness as he could have given evidence on matters of difference in the accounts of Davidson and Freeman. These went to the substance of the conversation in which Davidson is alleged to have stated that the guarantee bound Freeman only so long as he was a director of World Class, and as to when and where the conversation occurred. Another issue was whether McKenna was present at that conversation concerning the guarantee, which Davidson denied.
It transpired in cross-examination that Davidson had spoken to McKenna a few weeks prior to the trial. Davidson, in response to the cross-examiner, said that McKenna had left the employ of Australia Post, and that he (Davidson) had rung him at his home to ask if he could recall a meeting on 9 September 1999 because he (Davidson) could not. He rang McKenna because McKenna had signed a letter to Freeman on 9 September 1999. McKenna said that he could not recall the meeting.
I note that in re-examination Davidson said that he thought McKenna left Australia Post in 2002.
Until Davidson gave this evidence in cross-examination there was no explanation as to why the plaintiff had not called McKenna. It was submitted by counsel for Freeman that it would be expected that the plaintiff would call McKenna and that his evidence would elucidate the matter of the conversation concerning the guarantee. In short the circumstances were such that it was appropriate to infer on the principles in Jones v Dunkel[1] that McKenna’s evidence would not have supported the version of events given by Davidson and would not have contradicted Freeman’s version of events.
[1](1958) 101 CLR 298.
In considering this submission it is to be borne in mind that the plaintiff’s case is that McKenna was not present at the relevant conversation. On the other hand, pre-trial Freeman took contradictory positions as to whether McKenna was present at the conversation.
In para 32 of his defence and counterclaim filed on 6 May 2005 Freeman alleged that the plaintiff represented that the purpose of the guarantee was to impose unlimited liability on Freeman for so long as he remained a director of World Class. In particulars to that plea it was stated that the representation was partly oral and implied and that insofar as it was oral it was constituted by a conversation between employees of the plaintiff including Davidson and McKenna and Freeman in or about September 1999 at the office of the plaintiff at 90 Collins Street, Melbourne. In para 10 of its reply and defence to counterclaim, the plaintiff denied the allegations in para 32.
By a request dated 16 May 2005 the plaintiff sought the usual particulars of the representation alleged in para 32 of the defence and counterclaim including of the substance of the conversation between McKenna and Freeman in which the representation was made. Instead of providing particulars pursuant to the request, on 15 June 2005 the plaintiff served an amended defence and counterclaim which amended para 32 by deleting the reference to McKenna in the particulars thereto. It was thus clear that Freeman no longer alleged that the representation was made in a conversation with McKenna.
Subsequently, on 7 November 2005 and pursuant to leave granted that day, Freeman filed another amended defence and counterclaim. This made substantial changes to the prior pleading. However para 32 remained the same in substance in that the reference to David McKenna remained removed from the particulars.
It was on these pleadings that on 13 December 2005 the case was fixed for trial on 9 August 2006, with an order that witness statements be filed and served on or before 2 August 2006. On 25 July 2006 the trial date was extended to 16 August 2006 to allow for some interlocutory work.
Notwithstanding the abandonment in the defence and counterclaim of the allegation that McKenna was present at the conversation on 9 September 1999, in his witness statement dated 11 August 2006 Freeman said that McKenna was present at the conversation in which Davidson made the representation alleged. It is a reasonable inference that it was the notice constituted by the witness statement that led Davidson to contact McKenna as he deposed in cross-examination.
Hence, although the notice of Freeman’s change of mind as to McKenna came late, the plaintiff was on notice for a few weeks before the trial of Freeman’s case in this regard. By this time it was near to seven years since the subject conversation occurred in September 1999. In view of the fact that Freeman’s allegation concerning McKenna was in the defence and counterclaim for only a little over a month in 2005 it may be speculated that the plaintiff had not asked McKenna for his recollection, if any, before the allegation was dropped. I do not, however, have evidence as to that. I do, however, have evidence from Davidson as to McKenna having informed him that he had no recollection of the conversation. Of course that is hearsay as to the fact but it goes to explain why McKenna was not called. Indeed, having regard to the elapse of time it would hardly be surprising if McKenna had no recollection. As to that I found that both Davidson and Freeman had difficulty in recollection.
I take all of these matters into account but nevertheless conclude that in the circumstances the failure to call McKenna does enable an inference that his evidence would not have assisted the plaintiff’s case.
It is not to be overlooked that Freeman did not call Oliver who he (Freeman) said was present at the conversation. It is important to note that Freeman said this in his witness statement although not in the defence and counterclaim. That is, in his witness statement Freeman introduced both McKenna and Oliver as being present at the conversation. In his witness statement, and in cross-examination, Freeman sought to explain why Oliver was not called. In short he said that he was not aware where Oliver lived or how he might contact him. He referred to other people trying to locate him but did not identify them by name or explain the attempts they made. He speculated that Oliver might have returned to the United Kingdom. He was also unable to contact Belynda Oliver, Green or Hayes. It seemed to me surprising that by one means or another none of these people could have been located bearing in mind that Freeman has been on notice of the claim since he received the demand to pay in December 2004. I am not satisfied that with due diligence Oliver could not have been located. Nor has the failure to call him been explained by thorough and admissible evidence. In these circumstances I infer that Oliver’s evidence would not have assisted Freeman’s case. Indeed it may be doubted whether after such a passage of time Oliver would have a reliable memory of the alleged conversation.
I turn from these considerations to the evidence of Davidson and Freeman concerning the conversation in which Davison is said to have stated that the guarantee imposed liability only while Freeman was a director. In doing so it is convenient to also refer to their evidence on the contentious matter of whether Freeman told Davidson of his resignation as a director.
As I have mentioned Davidson denied having said to Freeman that Freeman’s liability under the guarantee continued only so long as he was a director of World Class. That was the difference in substance between them, but there were other differences as to the time and place of discussions.
In his witness statement Davidson said that in September 1999 he attended Freeman at World Class’s office in Southbank and gave him the guarantee for signing and discussed the World Class account. He could not recall the date of the meeting but said that he had arranged the meeting in a telephone call a few days earlier. During the meeting he handed the guarantee to Freeman and told him that it had been prepared by Australia Post’s legal department and that he should obtain independent legal advice on it. He said that he never provides advice to customers when obtaining a guarantee nor does he explain the effect of a guarantee. That was his personal policy from which he did not deviate. He always suggests customers obtain their own legal and/or accounting advice on the operation of guarantees. He said that he discussed World Class’s account with Freeman and the terms on which it intended to collect payment from its debtors. He suggested that World Class request its debtors pay within seven days of invoice so that World Class could pay Australia Post within the stipulated 14 days. Davidson said that he either collected the guarantee from Freeman at World Class’s office or it was sent to him dated and signed.
On the issue of advice of Freeman ceasing to be a director of World Class, Davidson said that he never received written or verbal advice from Freeman of his resignation as a director. The first advice was by Oliver on 4 August 2003.
In cross-examination Davidson developed this account somewhat, and I summarise. He believed that he collected the guarantee. McKenna did not go with him when he took the guarantee to Freeman, and was not present at the discussion. He could not recall ringing Freeman on 8 September 1999 or that he met with Freeman and Oliver at Australia Post’s office on 9 September 1999. He said that his meeting with Freeman was earlier in September but he could not recall the date. He agreed that it appeared from a letter from McKenna to Freeman dated 9 September 1999 and from a letter from himself to Freeman dated 10 September 1999, that they had met with Freeman on 9 September but he could not recall the meeting. I note that these letters refer to the terms of credit having been discussed; they do not refer to the guarantee. Davidson did not make a file note of any of these meetings, nor of any telephone conversation with Freeman between March 1998 and June 2002.
On the assumption that there was, as Freeman says, a meeting on 9 September 1999 at which the guarantee was discussed, he (Davidson) said that World Class had to adhere to 14 day payment terms, that the account was at the stage where the plaintiff required Freeman and Oliver to sign a director’s guarantee, that he would have said something like directors of mail house companies like World Class are required to sign guarantees, and that the alternative was to run a cash account. He did not recall Freeman asking as to the effect on property jointly owned with his wife, or whether his wife would have to sign a guarantee or that he said that Freeman’s wife did not have to sign the guarantee. He said in evidence that it was not normal practice to get a wife to sign a guarantee unless they were a director. He did say to Freeman that his liability under the guarantee was unlimited. He denied saying that the guarantee only continued in force for so long as Freeman was a director. It was standard procedure and practice to say what he said. He said that his evidence really was that he would have followed standard practice.
Davidson then said that he had dropped off the guarantee in early September and collected it on 10 September 1999. He had discussed the guarantee with Freeman when he dropped it off.
When he went to the World Class office on 10 September Oliver was present; he had not said this in his witness statement. Oliver was present only briefly. He did not recall what Oliver said. He had no question about the guarantee.
Further on in cross-examination Davidson said that until Oliver’s advice on 4 August 2003 he had no idea that Freeman had resigned as a director of World Class. At a later point in cross-examination he said that he could not recall the conversation until his email which refers to it was found. Davidson denied that Freeman had advised him of his resignation in a telephone conversation in late June 2002.
Davidson said that he recalled Oliver telling him at a meeting “sometime in late 2002” that Oliver was taking over the administrative aspects of World Class including payment of the account and that Freeman was becoming involved on the sales side because that was more of a strength of his than the administrative side. Davidson agreed that this was not in his witness statement. He denied it was mentioned that Oliver would be in touch to introduce Green. It never became apparent that Freeman was not involved in the business.
Finally I note that in re-examination Davidson explained that his evidence that he did not say to Freeman that the guarantee only applied while he was a director was based on him recalling that he did not say it, and that it was not part of his regular process.
I now refer to Freeman’s evidence the essence of which is by now reasonably clear. Relevantly he commenced by referring to a note in his work book made on 8 September 1999 of a meeting to be held on the next day at Australia Post’s office with Davidson. He said that on 9 September 1999 he attended at the Australia Post office with Oliver and there met Davidson and McKenna. He could not recall if Teen was at the meeting. He said that the reason for the meeting was that the plaintiff considered the account was operating at a higher level than it liked in the absence of some form of security. Davidson had made this known to Oliver and himself in the period leading up to 9 September. At their meeting Davidson said that the plaintiff required guarantees from the directors. That was standard practice for mail house directors. He and Oliver did not object. The alternative was a cash account which World Class was not in a position to conduct.
Freeman said that he asked if the guarantee affected joint property of his wife and himself and whether she would be required to sign a guarantee. Davidson said that only the directors needed to sign. Davidson said that the guarantee was “unlimited”, the guarantors were responsible for what World Class owed to Australia Post. Davidson “stated to me that the guarantee would continue in force so long as I remained a director of World Class”. Freeman added that Davidson and McKenna made it clear that Australia Post required World Class to pay its account within 14 days of statement.
Freeman then said that on 10 September 1999 Davidson attended at the office of World Class at Southbank, and presented the guarantee to Oliver and himself who executed and dated it that day. The guarantee was either given to Davidson or forwarded to Australia Post. At about this time Freeman received two letters from Australia Post, one dated 9 September 1999 from McKenna and the other dated 10 September 1999 from Davidson. I referred to these letters earlier.
Proceeding on to 2002 when he decided to sell his interest in World Class, Freeman said that when he entered into the agreement to effect his departure and left World Class, he signed a number of formal documents to give effect to his resignation as a director. He left them with Oliver or World Class’s accountant to be lodged with the relevant authority.
Freeman further said that in the course of finishing up at World Class he telephoned Davidson in about late June 2002 and informed him that he was leaving World Class and was resigning as a director effective from 30 June 2002. He thanked Davidson for his efforts over the years. He said that Oliver would be in touch to introduce Green who was replacing him in the business. Davidson wished him well.
Freeman said that because Davidson had stated to him in the meeting on 9 September 1999 that the guarantee only applied while he was a director he “did not consider it necessary to give Australia Post written notification under cl 9” of the guarantee. When he told Davidson he was resigning Davidson did not say that he had to give written notice of resignation.
In cross-examination Freeman adhered to his version of events. He said that he had a clear recollection of what Davidson said at the meeting on 9 September 1999. In particular he asked Davidson what his responsibilities were as a director and Davidson stated that whilst he remained a director the guarantee would remain in force. He agreed that he had not referred to that question in his witness statement. He denied that Davidson said that he needed to seek independent legal advice.
Freeman agreed that when he spoke to Macdonald he did not say that Davidson had told him that the guarantee only applied while he was a director of World Class.
Freeman said that he made a conscious decision not to comply with cl 9 of the guarantee.
Finally, in cross-examination Freeman said that he did not notify Australia Post of his resignation as a director in writing because Oliver “was writing to all parties to introduce Stephen Green”, and “Oliver said he would be writing to all parties on my behalf”. He “should have” formally resigned as he did with Interact.dm.
Freeman said that Australia Post was aware that he was substantially responsible for World Class having financial accommodation provided by its banker.
In re-examination Freeman said that the Commonwealth Bank sold his property at 27 Cutter Street, Richmond and that the amount paid to the bank was $146,000 in June 2005. He was not aware until 2005 that the ASIC records showed that he only ceased to be a director on 15 March 2004. And, finally, in the conversation on 9 September 1999 in relation to the guarantee he and Davidson were the only persons who spoke.
I said earlier that both Davidson and Freeman had difficulty in recollecting the course of events in the first half of September 1999. That was not surprising. Davidson had no diary note or other contemporaneous record apart from the guarantee and his letter to Freeman, both dated 10 September 1999, and the letter written the day before by McKenna. Apart from those documents Freeman had only the note in his work book. From that basis each gave an account from their memory. It was plain on the evidence that Davidson required that Freeman and Oliver guarantee World Class’s debts, that Davidson provided the guarantee and that Freeman and Oliver signed it. It is also plain that at or about the time of these events a meeting was held at which Davidson and McKenna spoke to Freeman about World Class adhering to the terms of payment of 14 days within statement. It is clear from the letters that they discussed the terms of payment on 9 September 1999. As to whether the guarantee was discussed at this meeting, there is the evidence of Davidson that he met Freeman earlier in September to discuss both the guarantee and the account. These matters would support a finding that the relevant meeting did occur on 9 September as Freeman says. It would be consistent with that and other evidence that Davidson obtained the guarantee, duly signed, the next day. At the same time there are indications in the evidence, and it is not unlikely, that Davidson raised the matter of the guarantee and the state of the account earlier in the month. I should say in this regard that closely observing Davidson give his evidence, and considering his evidence in light of all the circumstances, I considered him an honest witness and that overall the substance of his evidence fitted the probabilities of the case. I did not reach the same conclusion with Freeman. I concluded that his evidence that Davidson said that he would be liable under the guarantee only while he was a director was both hopeful reconstruction and against the probabilities. (Nor do I accept that in about late June 2002 he told Davidson that he was resigning as a director.) I arrive at these conclusions having regard to the various differences in the rival accounts and notwithstanding that it could well have been that the relevant conversation concerning the guarantee occurred on 9 September 1999 and not when Davidson said. As I have said, the matters may have been, and I would as readily conclude that they were, mentioned earlier in September. In the end it is important to concentrate on the substance of what was said concerning the guarantee and, as to that, I accept the evidence of Davidson as correctly stating the position. As I have said, I so conclude not merely because I prefer Davidson as an honest witness but also because it is overwhelmingly improbable that he made the alleged representation.
The improbability of the representation is found in the terms of the guarantee with which Davidson was familiar. Furthermore, I accept that Davidson told Freeman to obtain independent legal advice. But, concentrating on the guarantee, the liability undertaken by the guarantor continued until revocation “at any time as to future transactions by one month’s notice in writing signed by any guarantor”. Nowhere in cl 9 or elsewhere in the guarantee was it provided that the otherwise indefinite nature of the guarantee was limited to the period, if any, in which the guarantor was a director of World Class, indeed the guarantee does not acknowledge the guarantor to be a director let alone of World Class. Thus, on its terms a guarantor who was a director of a relevant entity would continue to be liable after he or she ceased to be a director unless and until he or she gave written notice under cl 9. There may be cases in which a retiring director would not give notice as otherwise there would not be an effective guarantor of substance, or for some other reason appropriate in the circumstances. Equally, there may be cases in which a director would wish to revoke his or her guarantee even though remaining in office as a director. Clause 9 is drafted widely to allow for all such possibilities. Hence it is readily seen that the alleged representation amounted to a variation of cl 9 by adding to it that if the guarantor is a director of the debtor company his or her liability will automatically cease on the occurrence of resignation from that office. On this basis the requirement of one month’s notice in writing did not apply. By this stage it is apparent that the representation would work a substantial rewriting of cl 9. Davidson was an honest and intelligent man who was familiar with the guarantee. I reject Freeman’s evidence that Davidson made the alleged representation. In my view Freeman has sought to extrapolate from the request that the directors provide a guarantee, that Davidson stated that the guarantee would only apply while they were directors. In my view that is, at best to Freeman, hopeful reconstruction but it is not what Davidson said.
I should add that in arriving at this conclusion I have taken into account Freeman’s failure to tell Macdonald, when he spoke to him in December 2004, that he was not liable under the guarantee by reason of Davidson’s statement. He did not mention Davidson’s statement. In view of Freeman’s knowledge of the declining fortunes of World Class he had had ample time in which to consider his position. It may be said that he had seen the collapse of World Class coming. I further take note of the fact that the first advice of the representation was when it was alleged in the defence and counterclaim. It was not mentioned at any time before the proceeding was commenced.
In the above discussion I mentioned that I do not accept that in about late June 2002 Freeman told Davidson that he was resigning as a director of World Class. That finding is made in light of the above discussion and conclusions including that I prefer the evidence of Davidson, and the following matters. The World Class account consistently traded outside the 14 day term for payment and required ongoing supervision such that Australia Post required a charge over the debtors and directors’ guarantees. Further, Australia Post knew that World Class’s banking accommodation depended on security provided by Freeman. The probability is, in my view, that if Freeman had told Davidson what he claims, namely that “I telephoned Davidson in about late June 2002 and informed him I was leaving World Class and that I was resigning as a director effective from 30 June 2002”, Davidson would have reacted with concern if not alarm. The concerns would immediately and naturally have lain in these areas: was Freeman withdrawing his support for World Class’s banking facility and, if so, how would World Class be able to trade and what cash flow would it have; was Freeman to revoke his guarantee and, if so, was there to be another director who would provide a guarantee; in the circumstances what was World Class’s present and projected financial position, was the present security sufficient and should World Class be permitted to pay outside 14 days or be required to settle the account or pay future transactions in cash? Further, if Freeman said that Green was replacing him in the World Class business it is probable that Davidson would have pursued that aspect with a view to ascertain if Green was to or did become a director and the provision of a guarantee. Reactions and conduct on these lines, and possibly others, would have been probable in my view, but none occurred.
It is not to be overlooked that whatever Freeman did he retained a strong interest in the financial position of World Class. His rental property at 27 Cutter Street, Richmond remained as security for World Class’s banking facility. Without that facility World Class could not have continued. It is evident that Oliver and no other person involved in World Class had the wherewithal, or at least the disposition, to provide substitute security. In addition Freeman was dependent on World Class surviving to be paid his entitlements on the sale of his shares. Not only did he retain his shares but the evidence shows that he was kept up to date with the financial position of the company and was consulted as to the current situation and desired action. His continuing interest was understandable. He did not effect a total and clean separation from World Class on 30 June 2002. In the circumstances Freeman, like Oliver, had a strong interest not to upset the applecart with Australia Post. It was in his interest that Australia Post continued to permit World Class to trade.
It would have been the simplest thing for Freeman to have given Australia Post written notice of his resignation as a director, just as he did with Interact.dm. It was however his conscious decision not to give written notice to Australia Post. He sought to explain this on the basis that Oliver was to write on his behalf and introduce Green.
I accept Freeman’s evidence that he consciously decided not to write to Davidson. That being the case, why would he have orally advised Davidson as he alleges he did in about late June 2002? It seems inconsistent.
The fact of the matter, as I find it to be, is that Freeman did not so advise Davidson in about late June 2002, or at all. I reject his evidence. In my view the evidence was tailored to complement the case based on the alleged representation that liability under the guarantee ran only while Freeman was a director. Of course on that representation, or term, notice of cessation as a director was not necessary but it might have been considered that cl 9 might nevertheless be held to require notice of revocation. But, no written notice of revocation having been given pursuant to cl 9, the argument is that Freeman’s alleged oral advice was to be equated to such notice assuming that it was held that the alleged term still required a cl 9 notice to be given.
There are various difficulties with this, not the least of which is this. Assuming that Freeman did say to Davidson that he was leaving World Class and resigning as a director, that would not, standing alone, have constituted notice of revocation for the purpose of cl 9. To be effective for that purpose such a notice must clearly state that intention, as to which see Benge v Hanna[2].
[2](1979) 100 DLR 218 at 225-226.
Hence the oral advice could only be effective in the sense of bringing liability under the guarantee to an end at 1 July 2002 if it were first found that the alleged representation was made and constituted a term of the guarantee. I have concluded that it was not made. In consequence the guarantee did not include a term that Freeman’s liability under it ceased upon his ceasing to be a director of World Class. Furthermore, as already mentioned, I find that Freeman did not in about late June 2002 inform Davidson that he was leaving World Class and resigning as a director from 30 June 2002.
In arriving at these conclusions I have not overlooked but have taken into account all that Freeman’s counsel submitted, including that Davidson did not have file notes of conversations with Freeman, and had difficulty in recollection, that Australia Post had no contact with Freeman between July 2002 and December 2004, and the submission that Davidson was mistaken in saying that Oliver informed him in late 2002 that Freeman was in sales. I do accept Davidson’s evidence of Oliver’s statements to him. What Oliver said is understandable, in my view, in light of the poor financial circumstances of World Class. On rejecting, as I do, Freeman’s evidence of his oral advice in about late June 2002, there was no evidence that Australia Post was advised that Freeman had ceased to be a director until Oliver’s advice to Davidson in August 2003. I find that to be the fact. The conclusion is irresistible in my view that Australian Post was not earlier advised, in part at least, because of a concern that such advice may lead to a hardening of Australia Post’s attitude towards World Class. That is consistent with, and understandable in, the circumstances. Thus appreciating the situation at the time, Oliver’s statement also is understandable. It explained why Freeman was no longer involved. There is no evidence that in fact Freeman was involved in sales but he did retain an active interest in the company.
For the above reasons the grounds of defence referred to at [38(a), (b), (c), (e) and (g)] above must fail. As to ground (e) I would add only that the contention of a collateral agreement was impossible for the fundamental reason that the alleged agreement was inconsistent with cl 9 of the written agreement and thus offended the principle in Hoyt’s Pty Ltd v Spencer[3]. Whereas on its terms the written guarantee continued indefinitely until revoked by one month’s written notice under cl 9, the collateral term brought liability to an end on the guarantor ceasing to hold the office of director of the debtor company and without any requirement of notice to Australia Post.
[3](1919) 27 CLR 133 at 139-140.
That leaves for consideration grounds (d) and (f). Each ground fails for the following reason.
Ground (d) has two elements, variation of “the principal transaction” and conduct “prejudicial” to World Class. The “variation” was said to be constituted by Australia Post and World Class abandoning (without reference to Freeman) the term for payment in 14 days, the entry into arrangements in June 2003 and July 2004, the entry into the parcel agreement, numerous other changes to Australia Post’s terms and conditions, and providing a further $115,000 of mail services after forming the view on 29 October 2004 that World Class was insolvent. Counsel referred to Hancock v Williams[4] and Ankar Pty Ltd v National Westminster Finance (Australia) Limited[5].
[4](1942) 42 SR NSW 252 at 255.
[5](1987) 162 CLR 549 at 559-560.
The prejudicial conduct was constituted by Australia Post ignoring the 14 day payment terms, allowing the account to operate with overdue levels which seriously affected Freeman via the guarantee, and varying the principal agreement without Freeman’s knowledge or consent. In addition to Ankar counsel referred to The Modern Contract of Guarantee[6] where the learned authors (at [8.1100]) referred to the statement of the Privy Council in Black v Ottoman Bank[7] that a surety would be discharged from further liability if there has been “some positive act done by [the creditor] to the prejudice of the surety, or such degree of negligence, as in the language of Vice-Chancellor Wood in Dawson v Lawes (1854) 23 LJ Ch 434 at 441, ‘to imply connivance and amount to fraud’”.
[6]O’Donovan and Phillips, 4th Ed.
[7](1862) 15 Moo PC 472 at 483; 15 ER 573 at 577.
I do not accept these submissions. I find that the term that payment be made in 14 days was not abandoned or ignored. As before 30 June 2002 and thereafter Australia Post, without abandoning that term, bona fide managed the account as best it could always with a view to timely payment. Further, the actions of Australia Post were within the conduct which cll 6 and 7 authorised to be taken without affecting the liability of the guarantor. In addition, by cl 8 the guarantor is a principal debtor and waived any rights as a surety inconsistent with those provisions. As to the parcel agreement, this did not alter the so called principal agreement. Indeed cl 1 of the guarantee contemplated liability arising under an agreement entered into by Australia Post and World Class subsequent to the date of provision of the guarantee. As to changes to some of Australia Post’s standard terms and conditions, it was not indicated that any of them were prejudicial to Freeman as surety whether in substance, materiality or relevance and I conclude that they were not and that none had the effect of vitiating liability under the guarantee.
I deal finally with ground (f). At the outset counsel recognised that the mere fact of execution of the second guarantee did not have the effect of discharging Freeman from liability under his guarantee. As to that see Mahoney v McManus[8]. However, Freeman’s counsel submitted that the present case was different having regard to Davidson’s representation on 9 September 1999, Freeman’s notification of resignation as a director in late June 2002 and Australia Post’s knowledge by August 2003 that Freeman had resigned. In that setting it could be inferred that Australia Post intended to discharge the original guarantee of Freeman and Oliver and replace their guarantee with the guarantee of Oliver and Hayes.
[8](1981) 180 CLR 370 at 379.
I reject the submission. In the first place, the first two elements of the factual premises of counsel’s submission are not established. The third element is established. It is however clear that when Oliver advised Davidson that Freeman was not a director Davidson wanted a guarantee from Hayes. It is true that when the second guarantee was signed in 2004 it was signed by Hayes and Oliver, but what Davidson had originally wanted was a guarantee from Hayes. There is no evidence on which it could be found that in obtaining the second guarantee Australia Post intended that Freeman be discharged from his guarantee. I find that Freeman was not discharged from his liability as guarantor.
For these reasons all of the grounds of defence fail. The result is therefore that there will be judgment for the plaintiff and an order for the amount claimed with interest and costs including reserved costs. The counterclaim will be dismissed with costs.
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