Beerens v Bluescope Distribution Pty Ltd
[2012] VSCA 209
•5 September 2012
SUPREME COURT OF VICTORIA
COURT OF APPEAL
| S APCI 2011 0055 | |
| THOMAS BEERENS | Appellant |
| v | |
| BLUESCOPE DISTRIBUTION PTY LTD (ACN 096 380 068) | Respondent |
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| JUDGES | NETTLE, REDLICH and TATE JJA | |
| WHERE HELD | MELBOURNE | |
| DATE OF HEARING | 1 June 2012 | |
| DATE OF JUDGMENT | 5 September 2012 | |
| MEDIUM NEUTRAL CITATION | [2012] VSCA 209 | |
| JUDGMENT APPEALED FROM | BlueScope Distribution Pty Ltd v Beerens [2010] VCC 1802 (Judge Ginnane) | |
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CONTRACT – Personal guarantee and indemnity by director for debts and monetary liabilities of company – Whether guarantee and indemnity was obtained under illegitimate pressure amounting to economic duress – Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40 – Unconscionable conduct – Whether exercise of contractual rights was in contravention of implied obligation of good faith – Whether pressure analogous to knowing assistance in a breach of a fiduciary duty – Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89 – Meaning of ‘debts and monetary liabilities which are or may become payable’ – Sunbird Plaza Pty Ltd v Maloney (1988) 166 CLR 245 – Whether price payable calculated at time of delivery or time of order – Whether debtor failed to mitigate loss – Appeal dismissed.
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| Appearances: | Counsel | Solicitors |
| For the Appellant | Mr A T Strahan | Foster Nicholson Jones Lawyers |
| For the Respondent | Mr T R Messer with Mr K J Naish | Turks Legal |
NETTLE JA:
This is an appeal from a judgment given in the County Court in favour of the respondent (‘BlueScope’) for sums totalling $272,209.92 pursuant to an instrument of guarantee and indemnity dated 30 October 2007 (‘the Guarantee’).
The judgment below
As the judge below identified in his reasons, ultimately there were five issues for determination at trial.
The first was whether it was a term of the agreement between BlueScope and Griffiths & Beerens Pty Ltd (‘Griffiths & Beerens’) that the price for steel delivered to Griffiths & Beerens would be the price at the time at which an order was placed or at the time of delivery. The judge held that, in the absence of a written quotation, the price was the price according to the prevailing price list at the time of delivery.
The second issue was whether it was a term of the agreement between BlueScope and Griffiths & Beerens that Griffiths & Beerens was obliged to pay for goods ordered but not delivered. The judge found that, when the receiver was appointed, he caused Griffiths & Beerens to cease to trade and refused to pay for steel products which had been ordered but not yet delivered. His Honour further found that, although the winding up of the company as such did not entitle BlueScope to treat the contract as repudiated, the combination of clause 6.6 of the Conditions of Sale and the receiver’s and liquidator’s refusal to take delivery of ordered goods entitled BlueScope to terminate the contracts for the supply of those goods and sue to recover damages for the loss suffered by reason of Griffiths & Beerens’ failure to take and pay for those goods in accordance with the contracts of supply.
The third issue was whether Griffiths & Beerens and BlueScope reached an enforceable agreement in July 2007 to alter the terms of credit upon which BlueScope sold and delivered steel products to Griffiths & Beerens. The judge held that they did enter into such an agreement, supported by valuable consideration, whereby BlueScope received an agreed promise of repayment on a particular schedule of amounts outstanding and in turn agreed thenceforth to supply goods on the Conditions of Sale.
The fourth issue was whether execution of the Guarantee by the appellant (‘Mr Beerens’) was procured by illegitimate economic pressure by reason of BlueScope’s threat to support an application by Proline Private Limited (‘Proline’) to wind up Griffiths & Beerens unless Mr Beerens executed the Guarantee. The judge held that BlueScope did not impose improper economic pressure.
The fifth issue was whether BlueScope failed to mitigate the loss it suffered by reason of Griffiths & Beerens’ failure to take and pay for goods which it had ordered. The judge found that BlueScope had to some extent failed to mitigate its loss, by refusing an offer to purchase the stock for $75,000 cash, and his Honour reduced the award of damages accordingly.
In the result, the judge gave judgment in favour of BlueScope, pursuant to the Guarantee, for $164,358.07 (inclusive of interest in the sum of $33,350.99) for goods sold and delivered, plus a further $272,209.92 (comprised of $226,554.53 damages and $45,655.39 interest) for goods ordered but not taken or paid for.
The facts
The facts as found by the judge were that BlueScope, previously known as Smorgon Steel,[1] was a distributor of steel products. Under the name of Smorgon Steel, it supplied Griffiths & Beerens with steel from which Griffiths & Beerens manufactured chainsaw guide bars, timber harvesting equipment and chainsaw sprockets. Mr Beerens was the director of Griffiths & Beerens. The company was placed into receivership on 10 September 2008 and ordered to be wound up on 11 September 2008.
[1]The Amended Statement of Claim pleads that BlueScope was at all material times, before about 17 December 2007, known as Smorgon Steel Distribution Pty Ltd (paragraph 1 (c)).
Mr Beerens then formed a new company, GB Manufacturing Pty Ltd (‘GB’), to continue substantially the same business. By agreement reached with the receiver, GB acquired Griffiths & Beerens’ premises, manufacturing equipment, raw materials and work in progress. Then it sought to acquire supplies of steel.
(i) The original pattern of trade
Initially, the pattern of trade between BlueScope and Griffiths & Beerens was such that BlueScope would send price lists to Griffiths & Beerens from time to time. They were tailored to Griffiths & Beerens requirements and informed it of when a price would increase and what that new price would be.
In turn, Griffiths & Beerens would submit purchase orders for steel products showing a price for each product taken from the most recently published price list and then, when BlueScope received the order, it would confirm receipt by noting the order on the stock status report and sending a copy of that report to Griffiths & Beerens on a regular basis.
BlueScope ordinarily took about six weeks to have steel manufactured into steel plates of the required length in accordance with an order. Then the product was stored at BlueScope’s Westall premises until Griffiths & Beerens called for delivery. Delivery was piecemeal and cross-referenced to purchase orders. When called for, it was usually required by next day. BlueScope invoiced Griffiths & Beerens on delivery and Griffiths & Beerens usually paid within 60 to 90 days of delivery, although on occasion payments were outstanding for longer periods of time.
(ii) The terms of credit
The arrangements between Griffiths & Beerens and BlueScope remained the same for many years. There was no written credit arrangement until 2007. In March
of that year, however, BlueScope informed Grifffiths & Beerens that it wanted to formalise the relationship by having Griffiths & Beerens submit a Credit Account Application. That led to negotiations as to the terms on which invoices would be paid. Mr Beerens with Mr Kennedy, who was the Finance and Administration Manager of Griffiths & Beerens, discussed the supply of steel with Mr Day, who was Smorgon Steel’s Finance & Administration Manager, and Mr Azzolini who was the Market Development Manager of that company.
At one stage in the negotiations, Mr Kennedy returned Smorgon's Conditions of Sale to Smorgon with many of the clauses crossed out. Smorgon retaliated by stopping supply on 18 June 2007. After that, discussion continued by email for the restoration of the account to payment by 65 days from the end of the month.
On 13 July 2007, Mr Day sent an email to Mr Kennedy in which, after commenting on the crossings out of the various clauses, he stated:
It is in neither party’s interest to get bogged down in this potential legal merry go round, and without a full comparative analysis of each clause of the respective T & Cs I propose that we conclude this matter in good faith. I propose that Griffiths & Beerens complete Sections 1 & 8 of our Account Application form, safe in the knowledge that the relationship and trading history between the two parties provide the implied terms and precedent which shall be maintained in the future. The exception to this statement however is the payment frequency which we have been discussing for some time. (Please note I have also acquired a copy of our competitor’s T & Cs and can assure that they are every [sic] similar in content to SSG’s).
Once a signed application form is provided, SSG would then like to re-iterate our request for payment within 65 days from end of invoice month. In the event that this cannot be met, we request some recent financial statements (P&L/Balance Sheet) which would assist in our efforts to provide credit beyond 65 days.
I look forward to your reply on these matters.
On 16 July 2007, Mr Kennedy responded as follows:
Please forward the SSG Account Application Form and T & Cs which I will complete and have Tom sign in good faith.
In terms of your request for payment within 65 days from end of invoice month – we have already provided you with our proposed payment plan which was accepted by you on the condition that we complete Sections 1 and 8 of your Account Application Form. Again, this will be done in good faith.
In terms of us providing any additional information which would assist in your efforts to provide credit terms beyond 65 days – we believe that the signed T & Cs and our proposed payment plan together with the long term relationship between the parties should be sufficient for your continued support over the next 5 months. By which time we would be inside your 65 day credit terms.
On 17 July 2007, Mr Day emailed Mr Kennedy, stating:
…thank you for your agreement to fill in the Account Application form as discussed, this is a positive step towards resolution of this matter.
With regard to your payment plan (issues 07/06), please understand that it has not been accepted and that acceptance was conditional upon both the Account form and some supporting financial data. The decision to trade outside 60-65 days is made at Corporate Office and neither, Omar nor I can approve these terms. Omar and I will discuss this case further with our National Credit Managers and push strongly to continue to trade outside the stated terms (as per your payment schedule), upon receipt of the Account Application form, however please do not construe this as acceptance of your schedule at this stage.
I have placed the Account Application in the mail and suggest that you notify me once it has been completed and I will arrange for it to be picked up.
The next day, Mr Kennedy responded to the effect that he would need Smorgon Steel to have accepted a payment schedule before he could ask Mr Beerens to sign the Credit Account Application.
On 27 July 2007, Mr Kennedy emailed Mr Day enclosing ‘this week’s payment ($47,589.06) which clears the April accounts’. He then set out a payment plan with effect that ‘by the end of November we would have achieved your target of a 65 day account’.
On 31 July 2007, Mr Day emailed to Mr Kennedy, as follows:
We have approved the reduction in payment terms as proposed below with the clear view to be within 60 days by the end of 12/07.
This is on the following provisos:
1) T & C signed and held without amendment by 3/8/07.
2) Account is to be blocked at day 60 from 1/1/08.
Thank you for your ongoing co-operation in seeking resolution in this matter. If you have any queries please don’t hesitate to contact me.
On 2 August 2007, Mr Kennedy replied by email to Mr Day, thus:
I am attaching hereto remittance advice for this week’s payment.
Tom has signed the SSG Account Application and I have forwarded same to you in the mail.
Mr Beerens and Mr Kennedy gave evidence that Mr Beerens completed sections (clauses) 1 and 8 of the Credit Account Application, which recorded the customer’s account details on the first page and provided for the signatures of all trustees/directors/partners/sole traders. Mr Kennedy said that he then returned the form to BlueScope but with only sections (clauses) 1 (Customer’s Account details) and 8 (Signatures of all Trustees/Directors/Partners/Sole Trader) completed, and thus that he did not return the document containing the Conditions of Sale.
As the judge found, however, the Conditions of Sale were incorporated by clause 5 of the Credit Application, which stated:
The Supplier’s Conditions of Sale (Issue Date: 1April 2004) (Conditions) are attached with this Application.
The Conditions are incorporated into each and every contract (Contract) for supply of goods made between the Supplier and the Customer after the date (Acceptance Date) that the Supplier agrees to provide credit to the Customer.
(Various obligations of the customer were then set out).
…
By signing this Application in the space provided in section 8, the Customer:
(a) expressly acknowledges having received notice of the Conditions including, in particular, those Conditions drawn to the Customer’s attention in the box above,
(b) expressly agrees that the Conditions are incorporated into each and every Contract for supply of goods made between the Supplier and the Customer after the Acceptance Date; and
(c) expressly agrees that if the Supplier varies the Conditions from time to time after the Acceptance Date and provides reasonable notice to the Customer of the variation, the Conditions as varied are incorporated into each and every
contract for supply of goods made between the Supplier and the Customer after the date of such notice.(iii) The execution of the Guarantee and Indemnity
Proline was a Singapore based company and a customer of Griffiths & Beerens. It issued a statutory demand to Griffiths & Beerens which, due to an oversight, Griffiths & Beerens failed to contest. On or about 2 October 2007 Proline issued a winding up application based on Griffiths & Beerens’ failure to comply with the demand.
Griffiths & Beerens issued a statement attacking the notice, alleging that it had been issued for an improper purpose and attributing Griffiths & Beerens’ failure to dispute the notice of demand to its oversight. It claimed that the alleged debt was not genuine; that it would resist the winding up application; and that it would prove its solvency in the Supreme Court.
On or about 8 October 2007, following the issue of the Proline winding up application, BlueScope restricted supply to cash on delivery terms. It argued that circumstances existed which attracted the operation of clause 6.6 of the conditions of supply, namely, that Griffiths & Beerens was presumed insolvent pursuant to s 459C(2) of the Corporations Act 2001 (Cth).
The judge found that, about a week after the winding up application was filed, Mr Persaud, who was Smorgon Steel’s Credit Manager, arrived unannounced at Griffiths & Beerens’ North Sunshine office, which was located about fifteen or twenty minutes from BlueScope’s premises on the other side of Sunshine. Mr Gwynne who was the Chief Operating Officer of Griffiths & Beerens was also present. Mr Persaud told Mr Beerens that, if he wanted to get off COD terms, he would have to sign a guarantee and that, if he did not sign it, BlueScope would ‘get on the back of the winding up proceeding’. Mr Beerens’ evidence was that he was horrified that he was being threatened with a winding up application that forced him to sign a guarantee. The meeting did not last long.
After the meeting with Mr Persaud, Mr Beerens contacted his solicitor who advised him that, if BlueScope or anyone else supported the Proline winding up application, Griffiths & Beerens would lose the solvency hearing and be wound up. Based on that advice, Mr Beerens instructed his solicitor to negotiate with BlueScope’s solicitors as to the terms on which he would sign the Guarantee.
There followed substantial discussions and negotiations between the solicitors about the terms of the Guarantee. On 26 October 2007, a series of emails were exchanged between them. The first contained the following statement from Mr Beerens’ solicitor:
As, you are aware, I will have the two directors of GB with me this afternoon, and would like to resolve the form of the guarantee and any payments that have to be made by 5.00 pm today.
The guarantee hasn’t been signed because I think there are some aspects of it that are inconsistent with the trading arrangements between the parties.
[various aspects of the guarantee were then discussed]
I would like to convey that the application brought by Proline Private Limited is an abuse and is based on false affidavits.
GB has evidence that the ‘commissions’ referred to by the Proline accounts girl are private commissions paid to Kua Si Lin and have never been paid to Proline, and could never been claimed by Proline. Hence I firmly believe that on 10/11 December 2007 the winding up application will be struck out with costs.
I have been instructed to issue proceedings for over A$100,000 by GB and Somers Engineering against Proline for the monies owed by Proline to GB
The claim by Proline has everything to do with trying to interfere with GB before the Duggan Hearing in early 2008.
The reaction of Smorgan [sic], although understandable, is exactly the reaction Mr Duggan[2] and Mr Kua Si Lin wanted to create.
[2]Mr Duggan was a former business associate of Mr Beerens and a former owner of Griffiths & Beerens.
On 26 October 2007, Griffiths & Beerens’ solicitor emailed to BlueScope’s solicitor noting that various sums would shortly be paid and raising issues in respect of provisions in the Guarantee. Among other things, he stated that:
All this is predicated on the fact that your clients resume trading with our client on their usual trading terms, and of course that Smorgon would not support the current (abuse of process) application by Proline.
Twice later on 26 October 2007, BlueScope’s solicitor responded. On the first occasion he wrote that, subject to the making of various payments, the amendments to the Guarantee that had been proposed were agreed, and that:
Further, the signed amended guarantee is to be delivered to my client no later than midday next Monday.
Upon completion of the above conditions my client will resume trading with your client at the current capped level.
In the second email, which he sent later on 26 October 2007, he stated as follows:
As requested I confirm that my client will not support the Proline application, subject of course to compliance by your client with the terms of the credit agreement, & conditions outlined today regarding the guarantee.
On 29 October 2007, there was some further communication concerning the Guarantee. Griffiths & Beerens’ solicitor sent an email to BlueScope’s solicitor, in which he stated that:
Our client is attempting everything in its power to maintain its relationship with your client. We simply ask that you recognize that this is being done and that the position is significantly enhanced once the guarantee is signed.
At trial, Mr Beerens deposed that, eventually, his solicitor negotiated with BlueScope’s solicitor the ‘terms on which I would sign the guarantee’ and that the Guarantee was delivered to Mr Kennedy who ‘put it in front of me’, whereupon Mr Beerens signed it and gave it back to Mr Kennedy. Mr Beerens also said that it was only BlueScope’s threat to join the winding up proceeding which forced him to sign the Guarantee. He clarified that by saying that he was aware that, if BlueScope supported the winding up petition, Griffiths & Beerens would be unable to prove its solvency; he was concerned that, if the company were wound up, the moneys which his family had lent to the company would be lost; and, hence, he felt compelled to sign. The judge accepted that evidence.
(iv) The resumption of supply
Once the Guarantee had been signed, on 30 October 2007, BlueScope resumed supplies of steel to Griffiths & Beerens on credit, and invoiced the company accordingly, and BlueScope continued to supply steel on that basis until the appointment of a receiver to Griffiths & Beerens on 10 September 2008.
On 11 September 2008, it was ordered by the Federal Court of Australia that Griffiths & Beerens be wound up in insolvency on the application of the Deputy Commissioner of Taxation.
In December 2008, Proline’s application to wind up Griffiths & Beerens came before Associate Justice Efthim in the Supreme Court. It is not clear whether his Honour was informed that the Federal Court had by then ordered that Griffiths & Beerens be wound up in insolvency. In dismissing the Proline application, however, his Honour noted that Griffiths & Beerens:
… was not wound up as it was a going concern and had paid the debt due, pursuant to the statutory demand, into Court. Further, no supporting creditor appeared to support the application despite considerable efforts made by Proline to notify creditors.
Grounds of appeal
It is convenient to deal with the grounds of appeal in the order in which they were argued.[3]
[3]Not all grounds were pressed.
Grounds 15 and 16: Is the Guarantee voidable
The principal grounds of appeal were to the effect that the judge erred in rejecting Mr Beerens’ claim that the Guarantee was vitiated by economic duress. In particular, it was said that his Honour erred in failing to consider evidence which showed that BlueScope knew that the Proline winding up application was devoid of substance, or at least knew that it may not have been well founded, and thus in failing to hold that, since that was BlueScope’s state of knowledge, BlueScope’s threat to support the Proline winding up application amounted to the imposition of illegitimate economic pressure that rendered the Guarantee voidable.
The judge began his consideration of the question of economic duress with reference to a number of authorities,[4] and then continued:
None of the authorities to which I was referred support the conclusion that the obtaining of the Guarantee, in the prevailing circumstances, was to use illegitimate economic pressure. I find that the requirement of a Guarantee imposed by Bluescope was not the exercise of illegitimate economic pressure.
I have reached this conclusion for the following reasons. First the trading relationship between the parties had changed significantly because of the making of the winding up application. Both Bluescope and Griffiths & Beerens faced new risks in their trading relationship. Prudent commercial practice required a reconsideration of the terms on which Bluescope would trade with Griffiths & Beerens after the winding up application was made. The trading terms negotiated in July and August 2007 had not contemplated the winding up of Griffiths & Beerens.
Second, Bluescope was entitled to invoke the rights given by clause 6.6 of the Conditions of Sale, and issue a demand for payment and become a supporting creditor in the winding up. Bluescope could have made the debt immediately due and payable by making a simple demand for payment, once a receiver was appointed to Griffiths & Beerens and again when a liquidator was appointed. It was entitled to refuse to extend further credit and to demand immediate payment of all moneys due. Bluescope bona fide believed that it was entitled to the debts owed by Griffiths & Beerens.
Third, Bluescope was lawfully entitled to refuse to accept new purchase orders from Griffiths & Beerens.
Fourth, Mr Beerens obtained legal advice and the Guarantee was only entered into after substantial negotiation.
Fifth, there were other suppliers of steel with whom Griffiths & Beerens might have obtained steel product.
[4]Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, 46; cf. Westpac Banking Corporation v Cockerill (1998) 152 ALR 267, 289; PMP Print Pty Ltd v Wood [2005] VSC 230, [95]; CTN Cash & Carry v Gallaher [1994] 4 All ER 714, 717–718; McKay v National Australia Bank [1998] 4 VR 677, 689–90.
In large part I agree with the judge. Assuming that clause 6.6 of the Conditions of Sale was engaged (which is a question to which I shall to come a little later in these reasons), BlueScope was entitled to demand payment of all amounts outstanding, and to refuse to supply on credit, unless and until a guarantee was provided; and there was nothing improper about BlueScope demanding that on this occasion.
Generally speaking, it is not improper pressure to threaten recovery proceedings, including bankruptcy and winding up proceedings, in good faith in order to persuade a debtor to pay what is due.[5] So, if BlueScope had done no more than threaten to institute a proceeding to wind up Griffiths & Beerens in insolvency, there could not have been any suggestion of improper pressure.
[5]McKay v National Australia Bank Ltd [1998] 4 VR 677, 685–688 (Winneke P); Goff & Jones, The Law of Unjust Enrichment, 8th Ed, Ref [10–07].
Admittedly, there is here the further question of whether BlueScope’s actions in threatening to support the Proline winding up application amounted to improper pressure. For, as is now known, Proline’s application to wind up the company was an abuse of process and, therefore, improper. The thrust of the appellant’s argument below, and again before us on appeal, was that, because Proline’s application was improper, it followed that BlueScope’s threat to support it was also improper.
On one view of the matter, the judge did not deal with that contention. But it is implicit in his Honour’s analysis that he rejected it and, with respect, I consider that he was right to reject it.
If a creditor makes a threat to bring a proceeding which the creditor knows to be groundless or for an improper purpose, the threat is improper and may impose improper pressure sufficient to vitiate a transaction or payment of which it is a substantial cause.[6] Similarly, if a creditor makes a threat to do something unlawful, even though the creditor believes he is lawfully entitled to do it, there are circumstances in which the law will regard the threat as amounting to improper pressure and relieve against its consequences.[7] But in a commercial context, the circumstances in which that is so are likely to be rare.[8] It is, moreover, not unlawful to support an application to wind up a company[9] and there is nothing in authority or principle to support the view that it would be improper pressure to do so where all that is known of the validity of the application is that it is disputed by the debtor. Further, even in cases where there is improper pressure, it will not necessarily vitiate a transaction consequent upon its imposition. It will depend on whether the transaction is the product of a wish to compromise in order to avoid the burden of disputing the demand, as opposed to the overbearing effect of the demand on the mind of the debtor.[10]
[6]Unwin v Leaper (1840) 1 Man & G 747, 133 ER 533; Goodall v Lowndes (1844) 6 QB 464, 467; 115 ER 173, 176; Crescendo Management Pty Ltd v Westpac Banking Corp (1988) 19 NSWLR 40, 46; Universe Tankships Inc of Monrovia v International Transport Workers Federation [1983] 1 AC 366, 384; Goff & Jones, The Law of Unjust Enrichment, 8th Ed, at [10-01].
[7]Westpac Banking Corporation v Cockerill (1998) 152 ALR 267, 289 (Kiefel J).
[8]CTN Cash and Carry v Gallaher [1994] 4 All ER 714, 719 (Steyn LJ).
[9]Corporations Act 2001(Cth) ss 459P, 465B; Re British Nation Life Assurance Association (1872) LR 14 Eq 492, 501; Re Metropolitan Fuel Pty Ltd [1969] VR 328.
[10]Huyton SA v Peter Cremer GmbH [1999] 1 Lloyds Rep 620, 636; cf Hawker Pacific Pty Ltd v Helicopter Charter Pty Ltd (1991) 22 NSWLR 298, 304 (Priestly JA).
In this case, there is no reason to infer that BlueScope knew that the Proline application was improper. Although the application was ultimately determined to be an abuse of process, there is no evidence that, at relevant times, BlueScope knew any more of the validity or invalidity of the Proline application than that Griffiths & Beerens disputed its validity for the reasons which its solicitor expressed. There is, for that reason, equally nothing to suggest that BlueScope could have said or done anything which might have added to the chance of Proline succeeding in its application. Consequently, BlueScope’s threat to support Proline’s application could not have meant (or for that matter reasonably have been understood to mean) any more than that, assuming the Proline application were found to be valid, BlueScope would submit to the court that Griffiths & Beerens should be wound up not only because of the debt owed to Proline but also because of the debt owed to BlueScope; and, perhaps, if Proline failed for any reason to prosecute its application to judgment, BlueScope might seek to be substituted as applicant pursuant to s 465B of the Corporations Act.
It follows, as I see it, that BlueScope’s threat to support the Proline application was not shown to be other than a threat to invoke winding up process in good faith in order to recover amounts which were or would accrue due to BlueScope. That implies that such if any pressure as was imposed on Mr Beerens by reason of BlueScope’s threat to support Proline’s application was in truth no more than the pressure of knowing that, if Proline’s application were found to be invalid, BlueScope could nonetheless justly succeed in having Griffiths & Beerens wound up on the basis of amounts due or to accrue due from Griffiths & Beerens to BlueScope. In turn, that implies that Mr Beerens’ decision to execute the Guarantee was not shown to be other than a decision to compromise BlueScope’s claim, rather than run the risk of the winding up application succeeding because of BlueScope’s lawful support.
I am strengthened in that conclusion by the fact that, before Mr Beerens signed the Guarantee, he took legal advice, which he said in evidence was to the effect that the participation of BlueScope as a supporting creditor would be fatal to the company’s chances of avoiding being wound up, and that the solicitor for BlueScope and the solicitor for Mr Beerens then set about negotiating and settling the terms of the Guarantee.
In the result, I reject Grounds 15 and 16.
Ground 5: Debt due?
Under cover of Ground 5, counsel for Mr Beerens argued that the judge erred in concluding that BlueScope was in a position to make itself a creditor by calling up its debt pursuant to clause 6.6 of the Conditions of Sale. Clause 6.6 provided that:
If the Purchaser [Griffiths & Beerens] breaches a provision of these Conditions including, without limitation, a provision relating to the payment of money or if the Purchaser, being a natural person, is the subject of any personal insolvency event including, without limitation, arising out of the Purchaser committing an act of bankruptcy or if the Purchaser, being a company, has a receiver, receiver and manager, official manager, trustee, administrator, other controller (as defined in the Corporations Act) or similar official appointed or
steps are taken for such appointment over any of the assets or undertaking of the Purchaser or if the Purchaser suspends payment of its debts generally or is or becomes unable to pay its debts when they are due or is presumed to be insolvent under the Corporations Act or if the Purchaser ceases or threatens to cease to carry on business or any guarantee or security given to the Supplier in relation to the Purchaser is purported to be revoked or asserted to be unenforceable then the Supplier may, without limiting any other rights it may have, do any or all of the following things:(a) withdraw any credit facilities which may have been extended to the Purchaser and require immediate payment of all moneys owed to the Supplier by the Purchaser;
(b) terminate without the Supplier incurring liability to the Purchaser any contract in force between the Supplier and the Purchaser for the sale or supply of Goods or Services or both and, without limitation, withhold any deliveries of Goods or performance of Services pursuant to any purchase order accepted by the Supplier.
(c) suspend performance under or terminate, in either case without the Supplier incurring liability to the Purchaser, any contracts in force between the Supplier and the Purchaser, not being contracts for the sale or supply of goods.
Counsel for Mr Beerens submitted that the power conferred by clause 6.6 was constrained by an implied obligation of BlueScope to do what was required in order to enable Griffiths & Beerens to have the benefit of the August 2007 agreement for the supply of steel on credit; and, further or alternatively, by an implied obligation of good faith and fair dealing not to exercise legal rights for an improper purpose, and that, by acting as it did, BlueScope acted in breach of those obligations.
Those contentions face difficulties at several levels. To begin with they were not advanced below. In my view, it is too late now to allow them to be advanced for the first time on appeal.[11]
[11]Suttor v Gundowda (1950) 81 CLR 418, 438; Coulton v Holcombe (1986) 162 CLR 1, 8; Geelong Permanent Building Society (in liq) v Encel [1996] 1 VR 594, 605–608 (Tadgell JA).
Secondly, although every contract imports an implied obligation to do all such things as are necessary to enable the other party to the contract to have the
benefit of the contract,[12] the duty is informed by the express terms of the contract.[13] It is a duty to afford the other party the benefit of what he has contracted for; not a duty to act generally in the other party’s best interests. Here, Griffiths & Beerens contracted for the continuing supply of steel on conditions of sale subject to the express provisions of clause 6.6 of the Conditions of Sale that, in the event of a deemed event of insolvency, BlueScope would have the option to make all amounts outstanding immediately due and payable. It was no part of BlueScope’s obligation of affording Griffiths & Beerens the benefit of the 2007 agreement to act as if clause 6.6 had ceased to exist.[14] As Gyles J said in Council of the City of Sydney v Goldspar Australia PtyLtd,[15] the duty of co-operation does not extend to being nice.[12]Mackay v Dick (1881) LR 6 App Cas 251, 263 (Lord Blackburn); Butt v M’Donald (1896) 7 QLJ 68, 71 (Griffith CJ); Secured Income Real Estate (Aust) Ltd v St Martins Investments Pty Ltd (1979) 144 CLR 596, 607 (Mason J); Concrete Pty Ltd v Parramatta Design & Developments Pty Ltd (2006) 229 CLR 577, 584 [14] (Gummow ACJ).
[13]Australis Media Holdings Pty Ltd v Telstra Corp Ltd (1998) 43 NSWLR 104, 124–5; Byrne v Australian Airlines Ltd (1995) 185 CLR 410, 422.
[14]Far Horizons Pty Ltd v McDonald’s Australia [2000] VSC 310, [128] (Byrne J); Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 358 [168] (Gummow, Hayne, Heydon and Kiefel JJ).
[15](2006) 230 ALR 437, 497 [162].
Thirdly, if and insofar as the Conditions of Sale may have imported an implied obligation of good faith and fair dealing over and above the implied obligation of enabling Griffiths & Beerens to have the benefit of the contract,[16] it certainly would not have operated so as to restrict decisions and actions reasonably taken which were designed to promote the legitimate interests of BlueScope.[17]
[16]Renard Constructions (ME) Pty Ltd v Minister for Public Works (1992) 26 NSWLR 234, 255; Hughes Aircraft Systems International v Airservices Australia (1997) 76 FCR 151, 193; Alcatel Australia v Scarcella (1998) 44 NSWLR 349, 363–4; cf EssoAustralia Resources Pty Ltd v Southern Pacific Petroleum NL [2005] VSCA 228, [25].
[17]South Sydney District Rugby League Football Club Ltd v News Ltd (2000) 177 ALR 611, 705 [432]–[434].
Fourthly, if BlueScope had been shown to have known that Proline’s claim was without foundation, one might perhaps have said that BlueScope’s reliance on the Proline application as an event of deemed insolvency was contrary to BlueScope’s implied obligation to allow Griffiths & Beerens to have the benefit of the agreement, and, too, of such implied obligation of good faith and fair dealing as there may have been. As was earlier observed, however, all that appeared here was that Griffiths & Beerens disputed Proline’s claim and expressed reasons in support of its opposition to it. As far as BlueScope was aware, Griffiths & Beerens could have been right or it could have been wrong but, until such time as that was decided, BlueScope would be left in a state of uncertainty.
Finally, if BlueScope had continued to sell goods to Griffiths & Beerens until the dispute was resolved, it would have run the risk of the price proving irrecoverable. Self-evidently, a power like the power conferred by clause 6.6 – to cease supplies on credit and call up amounts outstanding in the event of a deemed insolvency – is designed to protect a creditor against just that sort of risk. On the evidence, BlueScope had every right consistent with its obligations of co-operation and good faith and fair dealing to invoke the clause as it did.
In Mr Beerens’ written outline of submissions, it was further contended that for BlueScope to threaten to support the Proline application in circumstances where BlueScope did not know whether the Proline claim was well founded was to make a representation without adequate grounds, and thus to engage in misleading and deceptive conduct contrary to s 52 of the Trade Practices Act 1974. Unsurprisingly, counsel for the appellant abandoned that contention in the course of oral argument.
I reject Ground 5.
Grounds 1, 6, 7, 12 and 13: does the indemnity respond only to the ‘guaranteed moneys’?
Counsel for Mr Beerens argued next that the judge erred in holding that the Guarantee extended to the loss and damage suffered by BlueScope by reason of the company’s failure to pay the amounts which were due or to become due.
That point, too, was not pleaded or the subject of submissions below and, once again, as with the implied contractual obligations and arguments, it is too late now to allow it to be raised for the first time on appeal.
In any event, I think it is untenable. The Guarantee provided inter alia as follows:
In consideration of the Supplier agreeing to supply or continuing to supply goods and services on credit to the Customer named below and forbearing to sue the Customer (except where provided for by any statutory provision) for any payment currently due to the Supplier, each guarantor named below (the ‘Guarantor’) unconditionally and irrevocably guarantees to the Supplier the due and punctual payment of all debts and monetary liabilities, including without limitation, costs and expenses which are, or which may become, payable by the Customer to the Supplier or any related body corporate on any account and in any capacity (the ‘Guaranteed Moneys’) and, as a separate and independent obligation, agrees to indemnity and keep the Supplier and any related body corporate indemnified from and against any claim, action, loss, damage, liability, cost, expense, outgoing or payment suffered, paid or incurred by the Supplier or such related body corporate in relation to the non payment or non recovery of the Guaranteed Moneys.
According to the plain, ordinary and clear meaning[18] of the terms of that provision, Mr Beerens guaranteed to BlueScope the payment of all monetary liabilities which might become payable by Griffiths & Beerens on any account and in any capacity, and as a separate and independent obligation, to indemnify BlueScope against any damage suffered or incurred by BlueScope in relation to the non-payment or non recovery of any monetary liability which might become payable by Griffiths & Beerens to BlueScope on any account and in any capacity.
[18]Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461 [22]; IATA v Ansett Australia Holdings (2008) 234 CLR 151, 160 [8].
As Mason CJ explained in Sunbird Plaza Ltd v Maloney:[19]
There are, however, two common classes of guaranteed of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor’s obligation to pay arises on the debtor’s failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.
[19](1988) 166 CLR 245, 256.
In this case, the Guarantee is of the second type, which is to say that, by agreeing unconditionally and irrevocably to guarantee to BlueScope the due and punctual payment of all debts and monetary liabilities, including without limitation, costs and expenses which are, or which may become, payable by Griffiths & Beerens to BlueScope on any account and in any capacity, Mr Beerens ‘personally guaranteed the performance by [Griffiths & Beerens] of its obligation to make the payments’.[20]
[20]Moschi v Lep Air Sevices Ltd [1973] AC 331, 345.
When Griffiths & Beerens defaulted, and BlueScope accepted its repudiation of the agreement, the agreement came to an end. But Mr Beerens thereupon became liable in damages for breach of his undertaking that Griffiths & Beerens would pay for the goods ordered, and the measure of damages for which he thus became liable was the same as the damages which BlueScope could have recovered from Griffiths & Beerens for its breach of the agreement.[21]
[21]Ibid 339; Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq) [1989] VR 184, 193 (Kaye and Southwell JJ); Womboin Pty Ltd v Savannah Island Trading Pty Ltd (1990) 19 NSWLR 364, 370; Phillips & O’Donovan, The Modern Contract of Guarantee 4th Ed, 6.1810.
It is true that Griffiths & Beerens’ obligation to pay for steel was conditional upon delivery. But, as the judge found, Griffiths & Beerens had, by the receivers and liquidator, refused to take delivery. Griffiths & Beerens thereby intimated that BlueScope need not trouble to fulfil the condition on which Griffiths & Beerens’ obligation to make payment was dependent. Upon those facts, BlueScope was relevantly put in the same position as if it had delivered the steel.[22] Of course, that did not mean that BlueScope was entitled to recover the full purchase price of the undelivered steel. As the judge found, BlueScope was entitled to no more than the damage which it suffered by reason of Griffiths & Beerens’ refusal to pay for the steel. But it did mean that BluesScope was entitled to recover those damages notwithstanding that it had not delivered the steel.[23]
[22]Hotham v East India Co (1787) 1 Term R 638, 99 ER 1295; Peter Turnbull & Co Pty Ltd v Mundus Trading Co (Australasia) Pty Ltd (1954) 90 CLR 235, 250 (Dixon CJ), 261 (Taylor J).
[23]Laird v Pim, (1841) 7 M & W 474, 151 ER 852 (Parke B); Foran v Wight (1989) 168 CLR 385, 418 (Brennan J).
As has been explained, under the terms of the Guarantee Mr Beerens was bound as principal to procure that Griffiths & Beerens pay to BlueScope all amounts which were due. Accordingly, by failing to procure that Griffiths & Beerens take delivery of the steel and pay BlueScope what was due for it, Mr Beerens breached his obligations as guarantor and became liable in damages therefor.
Additionally, under the terms of the Guarantee Mr Beerens was liable to indemnify BlueScope against damage suffered by BlueScope in relation to the non-recovery from Griffiths & Beerens of amounts payable by it. He was, therefore, also liable to indemnify BlueScope against the damage which it suffered by reason of Griffiths & Beerens’ refusal to take delivery of the steel and pay for it what was due, and liable in damages for his breach of that obligation.
Counsel for Mr Beerens sought to argue by analogy with the decision of High Court in McDonald v Dennys Lascelles[24] that Mr Beerens’ liability as guarantor was discharged upon termination of the agreement. But as appears from the joint judgment of Kaye and Southwell JJ in Nangus Pty Ltd v Charles Donovan Pty Ltd (in liq), that submission is misplaced. As their Honours explained:
Mr. Southall's contention that the decisions of the High Court in McDonald v Dennys Lascelles Ltd. and in Sunbird Plaza Pty. Ltd. v Maloney supported his submission of a guarantor's liability being discharged upon rescission of the principal debtor's liability to perform the contract was not well founded. Those decisions were based on particular facts which are distinguishable from those in the present case. In McDonald v Dennys Lascelles the purchaser's liability to make an instalment payment under a contract for the sale of land was discharged by the vendor's inability to make title, thereby discharging the guarantor's liability to the vendor. In Sunbird Plaza Pty. Ltd. v Maloney the guarantors guaranteed performance of all the terms and conditions of a contract of sale including the payment of all moneys payable thereunder by the purchaser. The balance of the purchase money was payable upon settlement. The purchaser failed to make payment of the balance of the purchase money and gave notice purporting to avoid the contract. Settlement not having taken place, the guarantors were not liable under the guarantee for the purchaser's failure to pay the balance of the purchase money.
Accordingly, in the present matter the second-named appellant remained liable to the respondent under the instrument of guarantee for damages resulting from the first-named appellant's repudiation of the lease. It follows that no useful purpose would be served by acceding to the application for the several orders sought by the second-named appellant, and we reject the application.[25]
[24](1933) 48 CLR 457, 469 (Starke J).
[25][1989] VR 184, 195–6 (citations omitted).
For those reasons, I reject Grounds 1, 6, 7, 12 and 13.
Grounds 2, 3 and 4: Price payable for goods
At trial it was common ground, and the judge found, that the Conditions of Sale applied to each agreement for the supply of steel by BlueScope to Griffiths & Beerens. There was a dispute, however, comprised in the first issue earlier set out, as to whether, according to those Conditions of Sale and the pattern of trade, the price payable was the prevailing price at the time of submission of an order or the prevailing price at the time of delivery. In concluding that it was the prevailing price at the time of delivery, the judge reasoned as follows:
Clause 5 of the Conditions of Sale is headed ‘Price and GST’ and paragraph 5.1 states:
The price of Goods or Services or both of them will be the supplier’s prevailing price at the time of delivery.
The term ‘prevailing price’ was not defined.
The parties also referred to Clause 1 of the Conditions of Sale, which is headed ‘Quotations, Orders, Contract’ and provides:
1.1A written quotation issued by the Supplier to the Purchaser is an offer to sell and overrides the Supplier’s prevailing price list. A written quotation expires on the date specified as an expiry date. If no expiry date is specified, the written quotation expires 30 days after the date of the written quotation.
1.2 The Supplier may withdraw, revoke or vary a written quotation at any time prior to the Purchaser submitting an order which accepts the offer to sell comprised by the written quotation.
1.3 A contract for the supply of Goods is made when the Purchaser communicates (by writing or conduct) to the Supplier its acceptance of a written quotation.
1.4 An order from the Purchaser on terms which are inconsistent with the terms of a written quotation is an offer by the Purchaser to buy Goods from the Supplier. A contract for the supply of Goods is made if the Supplier communicates that it is prepared to supply the ordered Goods only on the terms of these Conditions and the Purchaser accepts delivery of the ordered Goods in which case the contract is deemed to have been made as at the date of the Purchaser’s order.
1.5A contract made pursuant to clauses 1.3 or 1.4 is wholly documented by any specific terms agreed by the Supplier and the Purchaser in writing including, without limitation, in a quotation and these Conditions. To the extent that any inconsistency arises between:
(a) the terms of a quotation and clause 6.2 of these Conditions, the terms of the quotation prevail to the extent of the inconsistency;
(b) the terms of a quotation and any clause of these Conditions other than clause 6.2, the terms of these Conditions prevail to the extent of the inconsistency.
1.6 Where in the period between acceptance of a quote and delivery of the relevant Goods, the Supplier incurs an increase in the cost of producing and/or delivering the Goods, the Supplier reserves the right to increase the quoted price of those Goods at any time prior to delivery (‘a price escalation’). The purchaser shall accept any such price escalation.
1.7 The provisions of these Conditions prevail over any terms and conditions of trade of the Purchaser whether or not any inconsistency arises.
After referring to the parties’ competing contentions, his Honour continued:
In the absence of a written quotation, the prevailing list price applies. This conclusion is supported by the terms of clause 5.1, whereby the parties agreed that the price payable for Bluescope steel would be the price at delivery. Transactions, which are not the subject of a written quotation, are regulated in respect of price by the price list prevailing at the time of delivery.
The opening words of clause 1.1 of the Conditions of Sale provide that a written quotation overrides the price list. However, that subclause only applies in the case of a specific written quotation issued in respect of the supply of steel product or other goods. I do not consider that the price list is a written quotation. A written quotation performs a separate function from the price lists which were circulated when price increases were impending. The quotation locks in the price, regardless of any later increase following the issue of a new price list. No written quotation of this character was provided in respect of the supplies that are the subject of these proceedings.
The result reached is consistent with a businesslike interpretation of the arrangement between the parties. Griffiths & Beerens was given a choice. It could either request a formal written quotation, or it could accept the price prevailing at the time of the delivery of the steel product. In the meantime, it was permitted to leave the steel product at Bluescope’s Westall yard.
The conclusion that I have reached is also supported by the trading history between the parties. That history, although it is not conclusive, rather supports the interpretation for which Bluescope contends. The history does not reveal, prior to the events giving rise to this litigation, any contention by Griffiths & Beerens of its method of the calculation of the price. It is true, however, that it is difficult to identify from the evidence where similar circumstances have arisen previously.
I therefore decide the first issue in favour of Bluescope.
Counsel for Mr Beerens argued that his Honour’s reasoning on that point was erroneous. He submitted that, inasmuch as purchase orders contained detailed information including the product ordered – by item number and description, the quantity ordered, the unit price prevailing at that time and the total price – an honest and reasonable business person in the position of the parties would have regarded the purchase order as concluding a contract on the terms offered by Griffiths & Beerens and thus would have expected BlueScope to have invoiced for the goods for the amount identified in the order.
I do not accept the argument. The submission of a purchase order of itself could not have constituted a binding contract of sale. There would need to have been some manifestation of acceptance before the contract could have come into existence.
Of course, if all that appeared were that Griffiths & Beerens submitted orders including prices for each of the goods ordered in the manner explained, and BlueScope thereafter delivered those goods, it might have been inferred that, by so delivering the goods, BlueScope accepted the offers comprised in the orders including the prices set out in the orders. But that is not all that appears. There is as well the fact that BlueScope published standard terms and conditions, which included clause 5.1 as set out above; that Griffiths & Beerens was aware of those standard terms and conditions, because BlueScope from time to time provided copies as and when revised; and that, as a matter of fact, there was a decades-long course of dealing between Griffiths & Beerens and BlueScope whereby, although Griffiths & Beerens included in its orders the prices for the ordered goods at the time of order, BlueScope invariably invoiced Griffiths & Beerens for the goods, and Griffiths & Beerens paid for the goods, at the prices prevailing at the time of delivery.
The significance of those facts assumes even greater significance once they are seen in the context that Griffiths & Beerens lacked the capacity to store stocks of ordered product; consequently, its practice was to forward-order goods from BlueScope and draw down on the ordered stock as demand required, ordinarily with next day delivery;[26] and, although BlueScope was a distribution company,[27] in order to accommodate Griffiths & Beerens, it stored the stock ordered by Griffiths & Beerens for that company at BlueScope’s expense until drawn down.[28] Judged by the standards of honest reasonable business people, it surely cannot be supposed that BlueScope would wear all of the costs and risks of holding bespoke stock for the benefit of Griffiths & Beerens without charging the ruling rate at the time of delivery.
[26]Reasons, [16].
[27]Reasons, [2].
[28]Reasons, [16].
Perhaps, if one sought to analyse the contractual relationship between Griffiths & Beerens solely in terms of offer and acceptance, the result might be thought problematical, inasmuch as the inclusion of prices in Griffiths & Beerens’ orders could be seen either as terms of the offers or alternatively, in view of clause 5.1, as a means simply of identifying the goods the subject of each offer. If, however, one looks at the correspondence as a whole, and the conduct of the parties over the duration of their relationship,[29] including in particular their invariable practice of invoicing and paying for goods at the prices prevailing at the time of delivery, it leaves no doubt that, by a combination of correspondence and conduct, if not as the result of estoppel,[30] BlueScope and Griffiths & Beerens came to an agreement that goods ordered, although identified in terms of prices prevailing at the time of order, would be invoiced and paid for at the prices prevailing at the time of delivery.
[29]Empirnall Holdings Pty Ltd v Machon Paull Partners Pty Ltd (1988) 14 NSWLR 523, 528–31; Integrated Computer Services Pty Ltd v Digital Equipment Corporation (Australia) Pty Ltd (1988) 5 BPR 97326, 11.117; Vroon BV v Fosters Brewing Group Ltd [1994] 2 VR 32, 79–83 (Ormiston J); Cheshire & Fifoot’s Law of Contract 9th Aust Ed [3.5]
[30]Riseda Nominees Pty Ltd v St Vincent’s Hospital (Melbourne) Ltd [1998] 2 VR 70, 76.
It follows that I see no error in the judge’s analysis. I reject Grounds 2, 3 and 4.
Ground 14: BlueScope’s failure to mitigate
Finally, under Ground 14, counsel for Mr Beerens argued that the judge had erred in his approach to the question of mitigation of damage in that, although his Honour found that GB made an offer in October 2008 to purchase stock which Griffiths & Beerens had failed to take or pay for, and that BlueScope refused to treat with GB, his Honour failed to explain why he did not consider BlueScope’s refusal of GB’s offer amounted to a failure on BlueScope’s part to mitigate its loss.
Possibly, the judge’s reasoning as to that aspect of the matter is a little cryptic. Apart from noting that the first offer on a cash terms basis made by GB did not emerge until 24 March 2010, his Honour said very little about the relevant events in 2008. On a careful reading of all that his Honour said, however, the logic of it may be seen.
It is apparent from the evidence that the so-called ‘offers’ made in October 2008 were constituted of a single conversation between Mr Kennedy of GB and Mr Armando of BlueScope, of which Mr Kennedy gave evidence as follows:
Now, in that context, did you in October 2008 seek stock steel from Bluescope? - - - Yes, that’s correct. I contacted Armando from Smorgons or Bluescope and advised him that I was the general manager for the company that had purchased the Griffiths & Beerens’ assets off the receiver and that I’d like him to come and meet with the directors of GB Manufacturing, set up an account and continue to purchase steel from Smorgons.
What response did you receive from this request? - - - Armando advised that naturally I would need to set up a new account. In the meantime I asked Armando if I could buy steel on COD until the account application had been processed …
Understandably, the judge said that:
Bluescope could not be criticised for declining to deal with GB Manufacturing on credit terms. The initial approach made was on the basis of opening a credit account with Bluescope.
The judge did not deal expressly with Mr Kennedy’s evidence that he inquired whether GB could purchase stock COD until the account application had been processed. But I take his Honour to have construed that evidence, as I would construe it, as meaning that GB was not willing to buy steel COD unless an account application were processed. Hence, if that inquiry had amounted to an offer (and I do not think it did), it would have been an offer to purchase on a condition that BlueScope was justified in rejecting.[31]
[31]Wenkart v Pitman (1998) 46 NSWLR 502, 526.
At all events, it was incumbent on Mr Beerens to persuade the judge[32] that the ‘offers’ of 2008 went any further than that; and plainly the appellant did not adduce evidence sufficient to discharge that burden. The evidence as to what if anything was offered at that time never went further than Mr Kennedy’s evidence as to his conditional inquiry. At best it was enigmatic. As BlueScope submitted, there was no evidence of an unconditional offer to purchase stock COD at any time before the offer of 24 March 2010, still less of GB having the capacity before then to make good an offer to purchase stock on cash terms.
[32]Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, 512.
Counsel for Mr Beerens argued that the evidence showed that, in late October 2008, there were opportunities for BlueScope to sell the undelivered stock to either GB or the receiver of Griffiths & Beerens, and that such a sale would have mitigated BlueScope’s loss if BlueScope had not refused to deal with the receiver or GB. Counsel relied in particular to the following correspondence:
(1) An email of 23 October 2008 from Armando Azzolini of BlueScope to Jeff Hoenig of BlueScope:
Got a phone call from Steve Thompson, he has purchased assets in relation to equipment and stock at Griffiths and Beerens and GB Products. Steve is based in Queensland.
Michael Kennedy who was the accountant for Griffiths and Beerens is now General Manger.
Steve wants me to set up an appointment with Michael as soon as possible to discuss supply of materials.
Hope to see him on Monday 27/10.
Can I please have some guidance here as to what to do going forward.
(2) An answering email of the same date from Mr Hoenig to Mr Azzolini:
Under no circumstances are we to talk to these ‘proposed’ purchasers. Please step back entirely.
I have instructed Andrew Fox [solicitor] to communicate with the Receivers and Manager with a view to full and entire payment of all the debt at settlement (if it is to occur).
(3) An email of 24 October 2008 from Mr Azzolini to Mr Hoenig:
Jeff,
Spoke to Managing Director of GB Manufacturing (New Business) and he tells me that he has spoken to the receiver which [sic] is still on the premises at Griffiths & Beerens and they are willing to buy the material required.
Can we sell this to them?
If not, why?
(4) An answering email of the same date from Mr Hoenig to Mr Azzolini:
Brett [solicitor]
Please outline our earlier discussion to Armando
Can we please leave this to our legal specialists now?
(5) An email of 24 October 2008 from Mr Azzolini to Michael Kennedy:
As per our discussions today, I am still unable to release any material to GB Manufacturing. There are certain legal aspects that I am not too familiar with going on and this includes tying up current stocks of materials.
It would be best at this stage that the receivers make contact with our legal representative Andrew Fox ([email protected]) to take this matter further.
Apologies that I cannot help any further, but this is out of my control.
(6) An email from Armando Azzolini to Jeff Hoenig dated 28 October 2008:
Jeff,
I have been asked to attend a meeting with Omar at GB Manufacturing (Michael Kennedy, General Manager) to discuss supply of materials to them. If they were to fill in a new account form and sign off guarantees then this should not be an problem [sic].
Michael tells me that this is a brand new company and that Tom Beerens (former owner) has been kept on and given the role of Manufacturing Manager.
Please advise if this will be ok. If not I need to give Michael an adequate answer as to why this cannot happen.
(7) An answering email of the same date from Mr Hoenig to Mr Azzolini:
Please advise the client that we are not attending such a meeting. Please do not place in jeopardy our security position on this file. I will discuss with Brett now.
Omar, do not attend under any circumstances.
(8) An email of 29 October 2008 from Armando Azzolini to Michael Kennedy:
Michael,
I thought I would touch base with you on the current state of play.
I am still unable to do anything with regards old Griffiths and Beerens stock being held in our store as this is now invoiced and I believe part of litigation for recoveries.
I have also been advised that Omar and I are unable to meet with the new business GB Manufacturing as there is still a connection with old people at G & B.
At the moment I am unable to even sell to the new company as this could also have legal implications.
I suggest that if you need anything further, deal with the receivers and of course our legal people, details available from the receivers.
Apologies as I cannot offer anymore.
(9) An email of 30 October 2008 from Steve Thompson of Direct Agencies to Armando Azzolini of BlueScope:
Dear Armando
GB Manufacturing Pty Ltd has recently been incorporated for the purpose of conducting manufacturing of components of the type that was previously manufactured by Griffiths & Beerens Pty Ltd (GB).
We understand that you hold a quantity of materials that were produced for the purpose of supplying GB. We wish to express our strong interest in acquiring some or all of these materials and wish to meet with you to negotiate a possible arrangement.
We are in the process of putting agreements in place to source materials and have a limited window of opportunity to finalise an arrangement with you. We would therefore appreciate your response within 24 hours.
(10) An email in response of 30 October 2008 from Mr Azzolini to Mr Thompson:
Steve,
I sent a note to Michael Kennedy yesterday and unfortunately the steel we currently have is tied up with the old Griffiths’ & Beerens Pty Ltd, and is involved with a lot of legal issues.
I have been asked not to involve myself in this and the suggestion is that you contact either the receivers or our legal counsel if any discussions were to go further with regards to acquiring this stock.
Unfortunately at the moment I am unable to do any dealings with the new business.
In my view, that correspondence does not advance the matter. The most it shows is that GB had some interest in acquiring ‘some or all’ of the stock held on hand for Griffiths & Beerens. There is no evidence of a firm offer to purchase any of that stock, still less a firm offer to purchase any of that stock for cash (as opposed to purchasing it under a credit facility of the kind mentioned in Mr Azzolini’s email of 28 October 2008). No doubt, each of GB’s overtures were repulsed by Mr Azzolini under instruction from Mr Hoenig. One may wonder why Mr Honig thought that to be appropriate. But GB was only repulsed to the extent of being requested to negotiate directly with the receiver or BlueScope’s legal adviser. There is no evidence of GB making any offer to the receiver or to BlueScope’s legal adviser. The overall impression created by the emails is that GB wished to buy only on credit terms and, as the judge said, BlueScope could not be criticised for declining to deal with GB on that basis.
Accordingly, I reject 14.
Conclusion and orders
In the result, I would dismiss this appeal.
REDLICH JA:
I have had the considerable benefit of reading in draft the reasons of Nettle JA and Tate JA. I agree that the appeal should be dismissed for the reasons they have each given.
TATE JA:
Introduction
This appeal is a challenge to the decision of the trial judge to enforce a personal guarantee and indemnity given by the director of a company for the debts and monetary liabilities of the company.
Griffiths & Beerens Pty Ltd (‘the company’) was a manufacturer of chainsaw steel sprockets and steel guide bars, for use in chainsaws and on timber harvesting equipment. Over a period of at least 25 years,[33] BlueScope Distribution Pty Ltd (‘BlueScope’),[34] a distributor of steel products, supplied the company with steel on the basis of an informal credit arrangement. In early 2007 BlueScope sought to formalise its trading relationship with the company, following a change in the company’s management by reason of the departure of the managing director, Mr Paul Duggan. In June 2007, BlueScope stopped supplying steel to the company.[35] Supply resumed once there had been a renegotiation of the terms of trade, and BlueScope and the company entered a formal Credit Agreement (‘the Credit
Agreement’) in about July/August 2007.[36] On or about 8 October 2007, following the issue of a winding up application by an unrelated party[37] on or about 2 October 2007, BlueScope required the company to pay for steel orders on a cash on delivery basis.[38] Supply was again stopped[39] and no further credit was provided until the appellant, Mr Thomas Beerens, a director of the company, gave a personal guarantee for the due and punctual payment of all debts and monetary liabilities of the company to BlueScope and an indemnity from any loss suffered in relation to the non payment of those debts or monetary liabilities (‘the Guarantee and Indemnity’).[40]
[33]BlueScope Distribution Pty Ltd v Beerens [2010] VCC 1802 (‘Reasons’), [26].
[34]BlueScope was formerly known as Smorgon Steel Distribution Pty Ltd.
[35]Reasons, [76].
[36]Reasons, [74], [85], [121].
[37]Proline Private Limited, a company based in Singapore. See further below at [129].
[38]Reasons, [98].
[39]Reasons, [74].
[40]Where relevant, the Guarantee or the Indemnity are referred to separately.
The Guarantee and Indemnity provides that Mr Beerens:
… unconditionally and irrevocably guarantees to the Supplier [BlueScope] the due and punctual payment of all debts and monetary liabilities, including without limitation, costs and expenses which are, or which may become, payable by the Customer [the company] to the Supplier or any related body corporate on any account and in any capacity (the ‘Guaranteed Moneys’) and, as a separate and independent obligation, agrees to indemnify and keep the Supplier and any related body corporate indemnified from and against any claim, action, loss, damage, liability, cost, expense, outgoing or payment suffered, paid or incurred by the Supplier or any such related body corporate in relation to the non payment or non recovery of the Guaranteed Moneys.
In September 2008, the company was placed into receivership and was wound up in insolvency as a result of an application by the Deputy Commissioner of Taxation.[41] By reason of the appointment of receivers and managers and the winding up, it was unable to pay BlueScope for steel products manufactured to order but not delivered (‘the undelivered goods’). BlueScope treated the company’s incapacity to pay as an inability to perform an essential obligation of the Credit Agreement and thus as a repudiation entitling it to withhold delivery, in relation to which it suffered loss and damage.
[41]Reasons, [97].The company was placed into receivership on 10 September 2008 and was wound up on 11 September 2008.
BlueScope brought proceedings for damages in the County Court against Mr Beerens to enforce the Guarantee and Indemnity in the sum of $391,175.88 in respect of the undelivered goods less the price obtained on the sale of those goods, resulting in a claim of $312,897.32.[42] It also sought to enforce the Guarantee and Indemnity in respect of goods that had been delivered but which remained unpaid by the company[43] (‘the delivered goods’) as a debt of $131,007.08. The company was not joined to the proceedings.
[42]Reasons, [4].
[43]Reasons, [166].
Mr Beerens argued at trial that his personal guarantee was unenforceable as it had been obtained by use of illegitimate pressure amounting to economic duress.
With respect to the delivered goods, Mr Beerens argued that the company had been over-charged. He sought to set-off the amount by which the company had been over-charged to reduce any liability he had for the debts of the company for the delivered goods.
He also argued that the company was not obliged to pay for the undelivered goods, and, further, that BlueScope had failed to mitigate its damage in relation to those goods.
The trial judge principally found in favour of BlueScope.[44] He rejected the argument that the Guarantee and Indemnity had been obtained by economic duress and was thus unenforceable. He held that the company had been obliged to pay for the undelivered goods and that BlueScope could recover damages from Beerens for the company’s default. He also rejected the claim that the company had been overcharged.
[44]Reasons, [168].
However, he held that BlueScope had failed to mitigate its loss but only with respect to its failure to accept an unconditional offer to purchase the remaining stock on a cash basis for $75,000.[45] Further, the trial judge upheld Mr Beerens’ argument that BlueScope was not entitled to claim (1) the Goods and Services Tax (‘GST’) payable on the price of goods manufactured, but not delivered;[46] (2) $16,392.37 in respect of 3.12 tonnes of 10 millimetre MAT G x 8000 steel product that had never been ordered; and (3) interest of $1,142.02 and costs of $958.19 contained in its final invoice of 13 October 2008 (after the company had been wound up).
[45]Reasons, [158].
[46]That is, BlueScope was not entitled to GST on its damages claim of $312,897.32: Reasons, [165].
The trial judge pronounced judgment for BlueScope for $164,358.07 (the debt of $131,007.08 and interest of $33,350.99) and damages in the sum of $272,209.92 (the sum of $312,897.32 sought, from which deductions were made in respect of Mr Beerens’ successful claims, leaving the sum of $226,554.53 plus interest of $45,655.39).[47]
[47]The trial judge also made various costs orders.
Mr Beerens appealed to this Court. In his written submissions, he identified four central issues as arising on the appeal, with which BlueScope joined in contest:[48]
[48]The Amended Notice of Appeal identified 20 grounds of appeal but many of the grounds raised similar issues and the appeal was argued by reference to these four central issues. Mr Beerens also applied for leave to appeal against the costs orders but this was abandoned during the hearing of the appeal.
A.Is the guarantee upon which BlueScope relies voidable because BlueScope obtained that guarantee from Mr Beerens by use of illegitimate pressure?
B.Upon its proper construction, did the indemnity respond only to ‘guaranteed moneys’ such that the sum of $226,554.53 was not recoverable from Mr Beerens thereunder?
C. Was the debt owing by the company $57,115.48?
D.Did the learned primary judge fail to assess fully BlueScope’s failure to mitigate its said damage?
It will be convenient to deal first with the issue of the debt owing by the company. This was raised in the context of the claim that the company had been over-charged with respect to the delivered goods. Before doing so, however, it will be useful to consider the history of the commercial relationship between the company and BlueScope.
History of the commercial relationship
The course of dealing between BlueScope and the company involved BlueScope sending price lists from time to time to the company. BlueScope’s price lists were tailored to the requirements of the company by specifying the price per tonne for the individual products the company had historically and routinely ordered. The price lists did not refer to a total price, nor make reference to an overall quantity of the products to be provided. They informed the company about pending price increases and the date on which any price increase would take effect.
The company would submit a purchase order for steel products containing detailed information, including: the product ordered by item number and description; the quantity ordered; a unit price taken from the price list; and a total price. BlueScope would confirm that it had received a purchase order by noting the new order on the stock status report, which it sent regularly to the company. BlueScope would usually take about six weeks to have the steel manufactured into steel plates of the required length. The steel was stored at BlueScope’s premises, the company having nowhere to store it. The company would gradually ‘draw down’ on its orders, asking for part delivery of its orders. Requests for delivery occurred over weeks and months. Delivery occurred when requested by the company and was cross-referenced to purchase orders. Requests were usually made for next day delivery. BlueScope invoiced the company when delivery was made. Each of the invoices contained the sentence:[49]
All goods supplied by BlueScope Distribution Pty Ltd ABN 88 096 380 068 are supplied under the BlueScope Distribution Conditions of Sale.
[49]The invoices also stated that the Conditions of Sale were available from sales centres, from a web centre or by calling a telephone number.
The company usually paid within 60 to 90 days of delivery, although on occasion payments were outstanding for longer periods. This informal relationship of extending credit to the company existed for many years before the Credit Agreement was executed.
The trial judge found that the BlueScope Distribution Conditions of Sale (‘the Conditions of Sale’) referred to in the invoices applied to each individual agreement to supply steel but the terms were modified by the trading pattern between BlueScope and the company.[50] The contest between Mr Beerens and BlueScope was in substance whether cl 1.1 or cl 5.1 of the Conditions of Sale applied to the transactions for the supply of steel.
[50]Reasons, [21].
Clause 1 of the Conditions of Sale, headed ‘Quotations, Orders, Contract’ provided:
1.1 A written quotation issued by the Supplier to the Purchaser is an offer to sell and overrides the Supplier’s prevailing price list. A written quotation expires on the date specified as an expiry date. If no expiry date is specified, the written quotation expires 30 days after the date of the written quotation.
1.2 The Supplier may withdraw, revoke or vary a written quotation at any time prior to the Purchaser submitting an order which accepts the offer to sell comprised by the written quotation.
1.3 A contract for the supply of Goods is made when the Purchaser communicates (by writing or conduct) to the Supplier its acceptance of a written quotation.
1.4 An order from the Purchaser on terms which are inconsistent with the terms of a written quotation is an offer by the Purchaser to buy Goods from the Supplier. A contract for the supply of Goods is made if the Supplier communicates that it is prepared to supply the ordered Goods only on the terms of these Conditions and the Purchaser accepts delivery of the ordered Goods in which case the contract is deemed to have been made as at the date of the Purchaser’s order.
1.5 A contract made pursuant to clauses 1.3 or 1.4 is wholly documented by any specific terms agreed by the Supplier and the Purchaser in writing including, without limitation, in a quotation and these Conditions. To the extent that any inconsistency arises between:
(a) the terms of a quotation and clause 6.2 of these Conditions, the terms of the quotation prevail to the extent of the inconsistency;
(b) the terms of a quotation and any clause of these Conditions other than clause 6.2, the terms of these Conditions prevail to the extent of the inconsistency;
1.6 Where in the period between acceptance of a quote and delivery of the relevant Goods, the Supplier incurs an increase in the cost of producing and/or delivering the Goods, the Supplier reserves the right to increase the quoted price of those Goods at any time prior to delivery (‘a price escalation’). The purchaser shall accept any such price escalation.
1.7 The provisions of these Conditions prevail over any terms and conditions of trade of the Purchaser whether or not any inconsistency arises.
Clause 4 provided for the Supplier to retain title to the goods until payment:
4.1 The Purchaser agrees that legal and equitable title to the Goods is retained by the Supplier until the Supplier receives payment in full from the Purchaser for the Goods, the Services and all other goods and services supplied to Purchaser by the Supplier at any time.
Clause 5 of the Conditions of Sale was headed ‘Price and GST’:
5.1 The price of Goods and Services or both will be the Supplier’s prevailing price at the time of delivery.
The term ‘prevailing price’ was not defined.
Clause 6 dealt with payment; this was not due (and thus did not give rise to a debt) until delivery.[51] Clause 6 also dealt with credit terms and the consequences of a purchaser being wound up:
[51]Reasons, [44]. This consequence is explored further below in the discussion of the issue Construction of the Guarantee and Indemnity.
6.1 Unless the Supplier has agreed to extend credit to the Purchaser, payment for Goods must be made by the Purchaser in immediately available funds on or immediately prior to delivery of the Goods.
6.2 Unless otherwise agreed by the Purchaser and the Supplier, the Supplier will be entitled to deliver the Goods in one or more instalments. Where delivery of the Goods is effected by way of part delivery, the Supplier will be entitled to invoice the Purchaser for pro-rata progress payments in respect of Goods delivered.
…
6.6 If the Purchaser breaches a provision of these Conditions including, without limitation … being a company, has a receiver, receiver and manager, official manager, trustee, administrator, other controller … or similar official appointed or steps are taken for such appointment over any of the assets or undertaking of the Purchaser or if the Purchaser suspends payment of its debts generally or is or becomes unable to pay its debts when they are due or is presumed to be insolvent under the Corporations Act or if the Purchaser ceases or threatens to cease to carry on business or any guarantee or security given to the Supplier in relation to the Purchaser is purported to be revoked or asserted to be unenforceable then the Supplier may, without limiting any other rights it may have, do any or all of the following things:
Second, it has the potential to redefine and undermine settled rules and principles of contract law, including the principle of commercial construction. Its practical operation also cuts across existing rules and principles which, although not strictly contractual, often operate in the contract context. These include matters such as election between rights and remedies, estoppel, relief against forfeiture and unconconscionability. Good faith, as currently being implied, assumes that these are inadequate and do not operate to ensure that the parties act in good faith. At one stroke, these concepts are swept away, but without any explanation, or perhaps even an appreciation, of the fact. Although it is really only expressing the same point in another way, it can also be said that ‘reasonableness’ is not what ‘good faith’ means.
[97]Carter and Stewart, op cit, 192-3.
I do not accept that, as the law currently stands, the content of any implied obligation or duty of good faith in the exercise of contractual rights and powers requires compliance with an overriding standard of reasonableness that would deny BlueScope the exercise of its contractual rights under cl 6.6 in the promotion of its legitimate commercial interests, when the conditions for the exercise of those rights are met. If the submissions of Mr Beerens ultimately depend upon postulating an overriding standard of reasonableness, they should be rejected.
In any event, I consider that BlueScope’s reliance on Proline’s application to withdraw the credit facilities and demand immediate payment was, in the circumstances, not unreasonable, particularly in the light of the observations made above.[98]
[98]See [149] and [153] above.
Independently of the question of reasonableness, the circumstances in which BlueScope was placed by the winding-up application, the threat of support from other creditors, and the concerns it had about the company’s ability to prove its solvency in the application, all contributed to the lawful exercise of its rights under cl 6.6. In my opinion, the exercise by BlueScope of its contractual rights under cl 6.6 was not unlawful.
Further, the submission based on an obligation of good faith was not pleaded, nor particularised, nor raised at trial. It should not be raised for determination on this appeal.[99]
[99]Geelong Building Society (in liq) v Encel [1996] 1 VR 594, 605.
(iii) Knowing assistance in breach of a fiduciary duty
Mr Beerens also urged this Court to find that BlueScope’s liability in this context is analogous to a liability for giving knowing assistance in a breach of a fiduciary duty. This liability requires knowledge of a dishonest and fraudulent breach of trust or breach of fiduciary duty on the part of the trustee or fiduciary with the consequence that the third party may become accountable as a constructive trustee, in accordance with the second limb of Barnes v Addy.[100] In Farah Constructions Pty Ltd v Say-Dee Pty Ltd[101] the High Court analysed the requirement of knowledge in the second limb of Barnes v Addy by reference to the five categories recognised in Baden v Societe Generale pour Favoriser le Development du Commerce et de l’Industrie en France SA:[102]
(i) actual knowledge; (ii) wilfully shutting one’s eyes to the obvious; (iii) wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make; (iv) knowledge of circumstances which would indicate the facts to an honest and reasonable man; (v) knowledge of circumstances which would put an honest and reasonable man on inquiry.
[100](1874) LR 9 Ch App 244, 251-2.
[101](2007) 230 CLR 89, 163 [174].
[102][1993] 1 WLR 509, 575-6, 582.
In Farah Constructions the High Court made it clear, by reference to Consul Development Pty Ltd v DPC Estates Pty Ltd,[103] that the fifth category of knowledge, knowledge that would put an honest and reasonable person on inquiry, does not amount to constructive notice sufficient to generate liability in equity by a third party. In a unanimous judgment, the Court said:[104]
[S]upport in Consul can be found for categories (i), (ii) and (iii). Further, Consul also indicates that category (iv) suffices. However, in Consul, Stephen J held that knowledge of circumstances which would put an honest and reasonable man on inquiry, later identified as the fifth category in Baden, would not suffice. Gibbs J left open the possibility that constructive notice of this description would suffice. Barwick CJ agreed with Stephen J.
The result is that Consul supports the proposition that circumstances falling within any of the first four categories of Baden are sufficient to answer the requirement of knowledge in the second limb of Barnes v Addy, but does not travel fully into the field of constructive notice by accepting the fifth category. …
These conclusions in Consul as to what is involved in ‘knowledge’ for the second limb represent the law in Australia.
[103](1975) 132 CLR 373.
[104]Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, 163 [176]-[178].
Mr Beerens argued that the circumstances of the case showed that BlueScope had the form of knowledge described in category (iii). However, it was never put to Mr Persaud in cross-examination, in the context of the statements on which Mr Beerens placed such considerable reliance,[105] or at all, that the reason Mr Persaud was not interested in any explanation Mr Beerens could offer about the Proline application was because he knew, or did not want to find out, that the winding up application was tainted. The evidence did not go so far as to support the proposition that BlueScope had engaged in a wilful or reckless failure to make inquiries that an honest and reasonable person would make. At most the evidence might support the claim that BlueScope had knowledge of circumstances which would put an honest and reasonable person on inquiry (the asserted improper purpose of the Proline application in the context of a pre-existing and ongoing dispute with the former managing director of the company). But this would result only in a claim of knowledge falling within the fifth category, and this does not suffice to satisfy the
second limb of Barnes v Addy. In my view, this submission must also fail.[106]
[105]See [141] above.
[106]During the hearing of the appeal Mr Beerens abandoned an additional submission that BlueScope, in making the representation that it could and would support the Proline application, when it had neither legal advice nor reasonable grounds, engaged in conduct that contravened s 52 of the Trade Practices Act 1974 (Cth).
I reject the grounds of appeal based on economic duress or illegitimate pressure.[107] The Guarantee and Indemnity is enforceable.
[107]Grounds 5, 15, and 16.
Construction of the Guarantee and Indemnity
The trial judge characterised BlueScope’s claim for payment for the undelivered goods as a claim in damages, and not as a debt.[108]
[108]Reasons, [48].
He found that cl 6.1 of the Conditions of Sale (supported by cl 6.2) provided for payment on, or following, delivery.[109] There was no evidence that the company had requested delivery of the undelivered goods before being wound up, on 11 September 2008. As at that date, the company had no obligation to pay for the undelivered goods and the trial judge held that BlueScope was not entitled to sue for a debt with respect to the undelivered goods.[110] Nevertheless, he held that Mr Beerens was liable to BlueScope at least under the indemnity clause of the Guarantee and Indemnity for damages in respect of the undelivered goods.[111]
[109]Reasons, [44]; see also [40], [41]. Clauses 6.1 and 6.2 of the Conditions of Sale are set out at [112] above.
[110]Reasons, [48].
[111]Reasons, [166], [168].
With respect to the delivered goods, there was no contest before the trial judge that BlueScope had in fact delivered those goods.[112] Having determined the overcharging issue against Mr Beerens, he held that Mr Beerens was liable under the Guarantee and Indemnity in respect of the sum of $131,007.08 characterised as either a ‘debt’ or ‘monetary liability’ in relation to the delivered goods.[113]
[112]Reasons, [8].
[113]Reasons, [168].
On appeal, Mr Beerens argued that the scope of the Guarantee and Indemnity did not extend to a damages claim. He pointed to the language of the Guarantee and Indemnity under which Mr Beerens guaranteed:[114]
the due and punctual payment of all debts and monetary liabilities, including without limitation, costs and expenses which are, or which may become, payable by the Customer [the company] to the Supplier … on any account and in any capacity (the ‘Guaranteed Moneys’)
and indemnified BlueScope:
from any and against any claim, action, loss, damage, liability, cost, expense, outgoing or payment suffered, paid or incurred by the Supplier or such related body corporate in relation to the non payment or non recovery of the Guaranteed Moneys.
[114]The terms of the Guarantee and Indemnity are set out at [93] above.
The language of the Guarantee and Indemnity, Mr Beerens argued, confined his obligation to ‘debts’ and ‘monetary liabilities’ arising on the company’s trading account. He accepted that the definition of ‘Guaranteed Monies’ might be wide enough to extend the obligation to debts arising out of the ordinary terms of trade, perhaps, for example, costs incurred by reason of special delivery requirements or other exceptional expenses. However, he submitted, the language does not extend to a claim for unliquidated damages, for such a claim is inconsistent with the language of ‘debts’ and ‘monetary liabilities’ reflecting, as they do, an obligation to pay fixed sums. The expression ‘monetary liabilities’ should be read noscitur a sociis[115] with ‘debts’. Any ambiguity (which was denied) requires a construction which favours the surety.[116] It followed, he submitted, that the claim for damages does not fall within the scope of the Guarantee and Indemnity. The finding of the trial judge that the claim with respect to the undelivered goods was not a claim for a debt was argued to be unassailable and it was not open for the trial judge to find, as he did, that Mr Beerens was liable for damages at least pursuant to the indemnity.
[115]The meaning of a word can be gathered from its associated words.
[116]Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 561.
Mr Beerens relied on the distinction drawn by Lord Reid in Moschi v Lep Air Services[117] between two types of guarantee; the first where the guarantor agrees to pay a sum if the principal debtor fails to pay, and the second where the guarantor agrees, more broadly, to ‘carry out’ the contract if the principal debtor fails to carry it out. Under the first form of guarantee, the liability of the guarantor only arises where the principal debtor has an obligation to pay and incurs a debt by failing to do so. The guarantor’s liability is dependent upon the existence of a pre-existing debt owed by the principal debtor. By contrast, under the second form of guarantee, the guarantor’s liability arises whenever the principal debtor fails to complete the contract. The principal debtor may fail to complete because, for example, the contract was lawfully terminated by the other contracting party; the guarantor’s liability is not dependent upon a failure by the principal debtor to pay a debt owed. Only the second form of guarantee makes the guarantor liable for damages for loss suffered due to the failure of the principal debtor to carry out the contract, including the loss arising from unpaid instalments under the contract not yet due.
[117][1973] AC 331.
In distinguishing between the two forms of guarantee, Lord Reid said:[118]
With regard to making good to the creditor payments of instalments by the principal debtor there are at least two possible forms of agreement. A person might undertake no more than that if the principal debtor fails to pay any instalment he will pay it. That would be a conditional agreement. There would be no prestable obligation unless and until the debtor failed to pay. There would then on the debtor’s failure arise an obligation to pay. If for any reason the debtor ceased to have any obligation to pay the instalment on the due date then he could not fail to pay it on that date. The condition attached to the undertaking would never be purified and the subsidiary obligation would never arise.
On the other hand, the guarantor’s obligation might be of a different kind. He might undertake that the principal debtor will carry out his contract. Then if at any time and for any reason the principal debtor acts or fails to act as required by his contract, he not only breaks his own contract but he also puts the guarantor in breach of his contract of guarantee. Then the creditor can sue the guarantor, not for the unpaid instalment but for damages. His contract being that the principal debtor would carry out the principal contract, the damages payable by the guarantor must then be the loss suffered by the creditor due to the principal debtor having failed to do what the guarantor undertook that he would do.
[118]Ibid 344-5.
Mr Beerens argued that the Guarantee and Indemnity fell into the first category and, there being no debt owed by the company with respect to the undelivered goods, no liability on his part arose.
In Moschi v Lep Air Services, Mr Moschi gave a personal guarantee with respect
to a contract for payment by weekly instalments by Rolloswin Ltd.[119] The contract was made in November 1967. The guarantee read:[120]
(XIII) In further consideration of the above Mr. Moschi has personally guaranteed the performance by Rolloswin Investments Limited of its obligation to make the payments at the rate of £6,000 per week together with the final payment of £4,000 as hereinbefore set out so however that Mr Moschi’s total obligation under this guarantee shall not exceed the total sum of £40,000 of which approximately £3,820 has already been paid as aforesaid.
[119]The agreement was for Rolloswin Ltd to pay a debt it owed Lep Air Services in exchange for Lep Air Services releasing goods imported by Rolloswin Ltd over which it was exercising a lien.
[120]Moschi v Lep Air Services [1973] AC 331, 343.
By December four instalments (£24,000) were due and Rolloswin Investments Ltd had paid only £10,060. Lep Air Services treated this failure to pay as a fundamental breach entitling it to bring the contract to an end. The House of Lords agreed that the contract had been lawfully brought to an end. Rolloswin Investments Ltd went into liquidation and Lep Air Services sued Mr Moschi to enforce his personal guarantee. As Lord Reid put it, Mr Moschi argued by saying:[121]
[L]ook at clause (XIII). It merely guarantees that each instalment of £6,000 shall be duly paid. But by reason of the accepted repudiation the contract was brought to an end before the later instalments became payable. So they never did become payable. All that remained after the contract was terminated was a claim for damages. But I never guaranteed to pay damages. If the creditor chooses to act so that future instalments are not payable by the debtor he cannot recover them from me.
[121]Ibid 344.
Emphasising the terms of cl (XIII), Lord Reid concluded that the guarantee Mr Moschi gave was of the broader variety where the guarantor’s liability was not dependent upon a pre-existing debt but arose whenever the principal debtor failed to carry out the contract, for whatever reason. In referring to the distinction he had drawn between the two types of guarantee, Lord Reid said:[122]
In my view, the appellant’s [Mr Moschi’s] contract is of the latter type. He ‘personally guaranteed the performance’ by the company ‘of its obligation to make the payments at the rate of £6,000 per week.’ The rest of the clause does not alter that obligation. So he was in breach of his contract as soon as the company fell into arrears with its payment of instalments. The guarantor, the appellant, then became liable to the creditor, the respondents, in damages. Those damages were the loss suffered by the creditor by reason of the company’s breach. … the whole loss was caused by the debtor having failed to carry out his contract. That being so, the appellant became liable to pay as damages for his breach of contract of guarantee the whole loss up to the maximum of £40,000.
[122]Ibid 345.
In Sunbird Plaza Pty Ltd v Maloney,[123] the High Court recognised the need for close attention to be paid to the terms of the guarantee in establishing a guarantor’s liability. As Mason CJ said:[124]
So it is that a creditor’s rights against a guarantor depend on the terms of the guarantee and the nature of the obligation, performance of which is guaranteed. If the subject of the guarantee is payment of a debt or a sum of money which has accrued due, the creditor may, on default by the principal debtor, sue the guarantor instead of the principal debtor for the debt or sum of money, his claim being for a liquidated amount. If, on the other hand, the subject of the guarantee is the performance of some other obligation, then the person having the benefit of the guarantee may, upon default, sue the guarantor for damages for breach of contract.
[123](1988) 166 CLR 245.
[124]Ibid 255.
In recognising that there was a difference between guaranteeing the payment of a debt ‘which has accrued due’ and guaranteeing the performance of other contractual obligations, Mason CJ approved the distinction Lord Reid drew between the two types of guarantee:[125]
My own view of the matter accords with that expressed by Lord Reid in Moschi where his Lordship rejected the notion that there was a common rule applicable to all guarantees and acknowledged that the parties are at liberty to make such agreement as they choose. There are, however, two common classes of guarantee of the payment of instalments by the principal debtor. The first is an undertaking by the guarantor that if the debtor fails to pay an instalment he will pay. This is a conditional agreement. The guarantor’s obligation to pay arises on the debtor’s failure to pay. The second is an undertaking by the guarantor that the debtor will carry out his contract. Then a failure by the debtor to perform his contract puts the guarantor in breach of his.
[125]Ibid 256 (citation omitted).
In Sunbird Plaza the guarantor guaranteed:[126]
The performance by the … Purchaser of all the terms and conditions of the Contract including the payment of all moneys payable hereunder by the said abovementioned Purchaser.
[126]Ibid 266.
The analysis adopted by Mason CJ, with whom Deane, Dawson and Toohey JJ agreed, was that the promise for the payment of moneys fell into the first category. He said:[127]
The respondents’ promise was that the purchaser would perform its contractual obligations including the payment of all moneys payable under the contract. The promise falls within the second class discussed above, except, perhaps in so far as the promise relates specifically to the payment of all moneys payable. In that respect the promise might well fall within the first category. Accordingly, if the balance of the purchase price had become payable, and had not been paid by the purchaser, the vendor might well have been entitled to sue the respondents for a liquidated amount, rather than claim damages for breach of contract. As it is, the balance of the purchase price did not become payable.
[127]Ibid 257 (original emphasis).
In construing the obligation to pay all moneys payable under the contract as falling with the first category of guarantee, Mason CJ was clearly construing ‘payable’ as meaning ‘due and payable’. This is apparent from his reference to the ‘balance of the purchase price [having] become payable, and had not been paid’ suggesting that moneys would only become payable when they became due for payment. The guarantor’s liability would only arise with the primary debtor’s default on a debt. The balance of the purchase price did not become payable because it was only due upon settlement and no settlement had yet taken place.[128]
[128]See also McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457, 476.
However, where the guarantee extends not only to moneys payable but to sums ‘due or to become due’ by the debtor, the promise is one falling within the second category. This was recognised by the House of Lords in Hyundai Heavy Industries Co v Papadopoulos,[129] referred to by Mason CJ in Sunbird Plaza,[130] as imposing an obligation on the guarantor to carry out, or perform the terms and conditions, of the contract.
[129][1980] 1 WLR 1129, 1151; [1980] 2 All ER 29, 46-7.
[130](1988) 166 CLR 245, 256.
Here, the Guarantee[131] extends to ‘the due and punctual payment of all debts and monetary liabilities … which are, or which may become, payable’. It might be argued that, in the Guarantee, the expression ‘which are, or which may become payable’ does not govern ‘debts and monetary liabilities’ but is confined in its operation to ‘costs and expenses’, confining the obligation of the guarantor to pre-existing debts or debts which have fallen due and remain unpaid. However, such a construction is artificial and borders on the ungrammatical as restricting the expression ‘which are, or which may become payable’ to costs and expenses would impose on the guarantor an obligation for the ‘due and punctual payment of all debts and monetary liabilities … by the Customer [the company] to the Supplier’. It is unlikely that debts and monetary liabilities would be described simply as ‘by’ the Customer, most particularly where the words ‘which are, or which may become payable’ have been included in the Guarantee.
[131]See above [178].
The obligation undertaken by Mr Beerens as guarantor to pay the ‘Guaranteed Moneys’ was, inter alia, for the payment of all debts and monetary liabilities which are, or which may become, payable. That is, the obligation was not only to pay debts that had been accrued by the company before BlueScope lawfully terminated the contract but also those debts that would have arisen, in futuro, had the contract remained on foot. The obligation was to carry out the contract, including the payment of the debts and monetary liabilities that would have arisen had the contract for the undelivered goods been completed.
The construction of the Guarantee as extending to debts in futuro is supported by the terms of cl 4(c) of the Guarantee and Indemnity, by which Mr Beerens agreed that he, the Guarantor:[132]
… understands the nature and effect of this Guarantee – in particular that the Guarantor has agreed to guarantee all amounts presently owed by the Customer to the Supplier and any related body corporate and all amounts that the Customer may in the future owe to the Supplier and any related body corporate …
[132]Emphasis added.
While the effect of the Conditions of Sale was that no debt became due until goods were delivered, the trial judge found that it was not the case that delivery could be held off indefinitely.[133] The contracts for the supply of steel included an obligation by the company to pay for the goods that had been manufactured in accordance with its requirements. The company was no longer able to perform a fundamental obligation of the contract once receivers had been appointed and it was no longer in a position to accept delivery of the undelivered goods or pay for them. The receivers would not accept the undelivered goods once the company ceased trading and they refused to pay for them. In those circumstances, BlueScope was thus entitled to terminate the contract under cl 6.6. In any event, as the trial judge found,[134] the unwillingness of the company or the receivers or liquidators to accept delivery and pay for the undelivered goods amounted to a repudiation of the contract for the supply of the undelivered goods, and BlueScope was entitled to accept that repudiation and bring the contract to an end.
[133]Reasons, [43].
[134]Reasons, [46].
In those circumstances, had the contract remained on foot, the company, in the discharge of its contractual obligations, ought to have taken delivery of the steel it had ordered. In other words, but for the company’s repudiation of the contract, the company would have incurred a debt for the price of the undelivered goods as and when those goods were delivered to the company. The price of the undelivered goods was thus a debt in futuro. The obligation undertaken by Mr Beerens under the Guarantee extended to the payment of the company’s debts in futuro. In my opinion, the Guarantee that Mr Beerens executed falls into the second category recognised by Lord Reid in Moschi v Lep Air Services and by Mason CJ in Sunbird Plaza. The failure by the company to carry out the contract put Mr Beerens directly in breach of the Guarantee. It follows that it is enforceable by BlueScope as a claim in damages under the Guarantee.[135] As the obligation to indemnify BlueScope was at least as large as the scope of the obligation under the Guarantee in relation to the non payment of the ‘Guaranteed Moneys’, the indemnity obligation is also enforceable by BlueScope in damages with respect to the undelivered goods.
[135]Subject to the obligation on BlueScope to mitigate its loss. See further below.
I reject the proposition made by Mr Beerens on the construction of the Guarantee and Indemnity and hold that his liability as a guarantor is enforceable by a claim for damages.
In any event, the issue of the scope of the Guarantee was not pleaded and was not raised at trial. Mr Beerens submitted that, nevertheless, he ought to be permitted to raise the issue on appeal because there is no irredeemable prejudice flowing to BlueScope by his tardy reliance on the issue. BlueScope argued that had the issue been raised at trial it would have sought to join the company to enforce a claim for damages against the company. BlueScope submitted that had it proceeded against the company, the claim for damages would have crystallised into a judgment debt immediately due and payable that would have fallen within the scope of the Guarantee. It has thus suffered prejudice and Mr Beerens should be estopped from raising a challenge based on the scope of the Guarantee.[136]
[136]Commonwealth v Verwayen (1990) 170 CLR 394.
It is unnecessary to determine how exactly the judgment debt would have fallen within the terms of the Guarantee: as a debt which, as at the date of the winding up, was, or would have become, payable. It is plain that the obtaining of a judgment debt against the company for the price of the undelivered goods, as a fixed sum, would have materially assisted BlueScope in its suit against Mr Beerens.
During the course of the appeal, the Court asked BlueScope whether, if a grant of leave were given in this Court, it would seek to amend its statement of claim. On instructions, Senior Counsel for BlueScope informed the Court that if given the opportunity, BlueScope would seek now to commence proceedings against the company and, if need be, would seek leave to join the company to the proceedings in this Court.[137]
[137]Mr Beerens indicated that leave would be resisted on the ground that it would be contrary to the desirability of the finality of litigation.
In my opinion, it is unnecessary for BlueScope now to take further procedural steps to modify its proceedings to respond to a submission that was not raised at trial. It is only in exceptional circumstances that an appellate court will permit a point not relied upon below to be heard on appeal. As Tadgell J said in Geelong Building Society (in liq) v Encel:[138]
[T]here can be no necessary expectation … that an appellate court will deal at the instance of an appellant with a pure point of construction that has not been raised and decided below. The ordinary rule is that such a point may not be raised unless there are exceptional circumstances. So much appears from the following passage in University of Wollongong v Metwally (No 2):
‘It is elementary that a party is bound by the conduct of his case. Except in the most exceptional circumstances, it would be contrary to all principle to allow a party, after a case had been decided against him, to raise a new argument which, whether deliberately or by inadvertence, he failed to put during the hearing when he had an opportunity to do so.’
[138][1996] 1 VR 594, 605 (citation omitted).
There is a risk that allowing novel points to be raised on appeal might reduce the proceedings at trial to ‘little more than a preliminary skirmish’.[139]
[139]Ibid 605 (referring to an extract from Coulton v Holcombe (1986) 162 CLR 1, 8).
In my opinion, Mr Beerens ought not be permitted to raise on appeal the issue of the scope of the Guarantee, especially given that, had the point been raised at trial, BlueScope would have taken a variety of procedural steps to resist the point raised.
In any event, I have already concluded that the construction of the Guarantee and Indemnity proffered by Mr Beerens ought be rejected on its merits.
The grounds of appeal[140] based on the construction of the Guarantee and Indemnity fail.
[140]Grounds 1, 6, 7, 12 and 13.
Did the trial judge fail to assess fully BlueScope’s failure to mitigate its loss?
After the company was wound up, Mr Beerens formed a new company, GB Manufacturing Pty Ltd (‘G & B’), which continued substantially the same business as the company at the same premises. By agreement reached with the receiver, G & B acquired the company’s manufacturing equipment, raw materials and work in progress. It required supplies of steel product.
In March 2010, BlueScope offered the undelivered goods for sale, some of which had rusted. Mr Kennedy, on behalf of G & B, offered to buy it, saying:
Some of it we cannot use but for the sake of convenience I can offer $75,000 cash to take the lot off your hands.
The offer was refused. The trial judge found that this offer should have been accepted and constituted a failure to mitigate. The sum of $75,000 was deducted from BlueScope’s claim with respect to the undelivered goods. BlueScope did not contest on appeal that there had been a failure to mitigate by refusing the offer of $75,000.
Mr Beerens argued that the trial judge had erred by failing to take into account earlier offers made in October 2008 in good faith to purchase the stock on a cash basis that had been met by a blank refusal.
BlueScope accepted that an approach had been made in October 2008 for G & B to purchase a small amount of steel on cash on delivery terms but only as a prelude to establishing a line of credit for G & B. The approach made was to ‘buy steel on COD until the account application had been processed’. G & B had no credit record. No price was suggested for the goods before March 2010. There was no unconditional offer to pay on cash terms until the offer of $75,000 in March 2010. The receivers told BlueScope in late October 2008 that they had no requirement for, or purpose in using, the undelivered goods as the company ceased trading on 24 October 2008.
BlueScope was under a duty only to act reasonably to mitigate its loss.[141] In the circumstances, where, apart from the offer in March 2010, there was no offer to pay cash unless BlueScope agreed to establish a line of credit for G & B, I consider that it was not unreasonable for BlueScope to refuse the approaches made by G & B where G & B was the successor to the company and G & B had no credit record.
[141]Metal Fabrications (Vic) Pty Ltd v Kelcey [1986] VR 507, 513.
The ground of appeal[142] based on the trial judge’s assessment of BlueScope’s failure to mitigate is not made out.
[142]Ground 14. There were several grounds of appeal that were not pressed. These included Ground 8 (failure to join the company as a party); Ground 9 (error in finding that BlueScope suffered damages); Ground 10 (failure by trial judge to disclose all the material relevant to his finding that BlueScope damages); Ground 11 (not established in accordance with s 140 of the Evidence Act 2008 that BlueScope suffered damages); Grounds 17–20 (interest).
Conclusion
In my opinion, the appeal should be dismissed.
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