Boral Resources (SA) Ltd (ACN 007 516 494) v Excavation Solutions (SA) P/L (ACN 106 979 140) & De Ionno & De Ionno - [2011] SADC 67

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
BORAL RESOURCES (SA) LTD (ACN 007 516 494) v EXCAVATION SOLUTIONS (SA) P/L (ACN 106 979 140) & DE IONNO & DE IONNO
[2011] SADC 67
Judgment of His Honour Judge Nicholson
20 May 2011
GUARANTEE AND INDEMNITY - ACTIONS AGAINST SURETY
Plaintiff sold building products to the first defendant on credit. The second and third defendants provided written guarantees. After commencement of proceedings, the first defendant went into liquidation and the third defendant was declared bankrupt - plaintiff's actions stayed as against first and third defendants.
Held: on the proper construction of the terms of the guarantee, the second defendant is liable to the plaintiff for amounts otherwise due and payable by the first defendant to the plaintiff.
District Court Act 1991 s 39, referred to.

BORAL RESOURCES (SA) LTD (ACN 007 516 494) v EXCAVATION SOLUTIONS (SA) P/L (ACN 106 979 140) & DE IONNO & DE IONNO
[2011] SADC 67

At all material times the plaintiff was a company that provided building products and the first defendant was a company engaged in the business of earthmoving. The second defendant Orazio (also known as Ray) De Ionno was the sole director of the first defendant and the third defendant Caterina De Ionno was the shareholder of the first defendant.
On or about 20 March 2009 the first defendant submitted a credit application to the plaintiff which was accepted by the plaintiff on or about 23 March 2009. Accompanying the credit application were two documents each headed Personal Guarantee and Indemnity Agreement, one executed by the second defendant and one executed by the third defendant. Each of these documents contained, inter alia, the following provisions:
Should the Supplier [defined in the confidential credit application form in such a way as to include the plaintiff] elect to [supply the first defendant with goods on credit]:
1.I/We guarantee payment to the Supplier of the price charged by the Supplier for Goods, supplied to the Customer [defined in the personal guarantee and indemnity agreement as the first defendant] from time to time, without any deduction or setoff whatsoever. I/We also guarantee payment of any other monies now or in the future owing by the Customer to the Supplier.
2.I/We indemnify the Supplier against all costs, losses and expenses which it incurs as a result of any default by the Customer. …
3.My/our guarantee and indemnity under this Guarantee will not be affected:
a) If the Supplier grants any extension of time or other indulgence to the Customer or varies the terms of the Customer’s account (even if this increases my/our liability under this Guarantee).
Under the heading ‘Acknowledgement’ and occurring immediately before the execution clause is the following:
By signing below as Guarantor(s), I/We certify that I/We understand the terms of this Guarantee. In particular, I/We understand that if the Customer fails to make any required payments to the Supplier, the Supplier may recover the amount of these payments from me/us personally. In such case, the Supplier may, amongst other recovery rights, take a charge over any Real Property.
During the period 30 September 2009 to 13 October 2009 inclusive the plaintiff supplied goods to the first defendant for a total value of $70,037.78. Of that amount the first defendant paid the sum of $11,961.20 but, according to the plaintiff, an amount of $58,076.58 has at all times remained outstanding. The plaintiff brought these proceedings initially with a view to recovering the outstanding amount from the first defendant and/or each of the second and third defendants. However, the first defendant is now under external administration; a liquidator was appointed on 1 December 2010. Further, the third defendant Caterina De Ionno was made bankrupt with effect from 12 April 2011 following the lodging of a debtor’s petition. Her estate is now under the control of the official trustee in bankruptcy. As a consequence, and by force of statute, the plaintiff’s action as against both the first and the third defendant has been stayed. The plaintiff has not sought leave from an appropriate court to continue with its action against either the first or third defendant. However, the plaintiff maintains its action as against the second defendant.
The matter came on for trial before me on Friday 6 May 2011. The trial was adjourned to Wednesday 11 May 2011 at which time it proceeded with the plaintiff tendering a number of documents and, through its counsel, making short submissions.
The second defendant tendered no evidence and made only brief submissions; in essence, drawing the court’s attention to a provision of the credit application form which, on the defence case, operated to limit the extent of the guarantee given by the second defendant.
The matters of fact that I have set out to this point are not contested by the second defendant and, in any event, have been established to my satisfaction by the admissions of the defendant in its Defence and the bundle of documentary evidence tendered by the plaintiff as exhibit P1.
I am satisfied that the sum of $58,076.58 remains due and owing by the first defendant to the plaintiff. The question before the court is whether or not the second defendant is liable for that amount pursuant to the Personal Guarantee and Indemnity Agreement executed by him. The second defendant has maintained at all times (see the two paragraphs both numbered 3 to the Defence) that his liability under the guarantee is limited to the sum of $5000 and admits an indebtedness to the plaintiff but only in that amount.
On the basis of the concessions made by the second and third defendants in their jointly filed Defence, a series of questions to be answered by the trial Judge was proposed by the solicitor for the second and third defendants with the consent of the plaintiff. Those questions are in a document contained within the trial book of copy documents. Nevertheless, in essence the second defendant’s argument rests upon the proper construction of the credit application form itself and, in particular, the entry on the front page of that document to the effect:
… Enter an estimate amount required, per month, for each Boral business where credit is requested.
… Concrete $5000-00.
The defendant maintains that in the credit application the first plaintiff requested credit in the amount of $5,000 a month and that that is all that the second and third defendants agreed to guarantee. It would follow, on the second defendant’s argument, that notwithstanding that the first defendant ordered goods from the plaintiff on credit and was supplied those goods on credit in an amount exceeding $5,000, any amount due by the first defendant, in excess of $5,000, would not fall within the guarantee. In my view, this is not a fair or proper reading or construction of the relevant documentation. The credit application merely calls for the provision of information by the first defendant so as to enable the plaintiff to decide whether or not to extend credit to the first defendant and for the plaintiff to be on notice of an estimated amount of credit per month required. It says nothing about the plaintiff limiting the extent of credit that might be granted to $5,000 or agreeing to limit any consequential liability with respect to the payment for goods provided where their value exceeds $5,000.
The second defendant’s argument overlooks clause 3(c) of the credit application which provides:
The credit allowed under this application is limited to the higher of the amount advised by the supplier or the amount of credit extended by the supplier to the customer.
This is an oddly worded provision. It is difficult to understand how credit allowed under the application could ever be greater, in any event, than the amount of credit in fact extended. Presumably, the provision is intended to have the effect that the first defendant was to have no entitlement to the credit requested of $5,000 per month and that any credit it was entitled to receive would be limited to that which the plaintiff was prepared to offer from time to time. Whether or not this provision, on its proper construction, does, in fact, have this effect does not need to be determined. However, what is plain is that there was no intention by the plaintiff or the first defendant to limit credit to a sum of $5,000.
At no time does the plaintiff promise to supply credit of only $5000. Any liability of the first defendant arises on a transaction by transaction basis. By clause 1(a) under the heading Credit Account Terms and Conditions in the credit application the customer, that is, the first defendant agrees it will pay by the due date without any reduction or setoff the price charged by the supplier for goods supplied to the customer. The provision goes on to provide that in the event that payment is not made credit facilities may be withdrawn and all charges to the customer’s account will become due immediately. It is plain that, when this document is read together with the guarantee document, the proper construction of clauses 1 and 3(a) of the guarantee document (set out above) is to the effect that all moneys due from time to time by the first defendant are to be guaranteed by the second defendant.
The provisions of the guarantee, and in particular those set out above, make it plain that the second and third defendants agreed to guarantee moneys owed by the first defendant to the plaintiff from time to time and this was not to be affected by any variation of the terms of the first defendant’s account even if it were to increase the liability of the guarantor. The second defendant had the unconditional right at any time to withdraw his guarantee on 14 days notice and, in so doing, to crystallize his potential liability (clause 6). Furthermore, the second defendant being the sole director of the first defendant and therefore the guiding mind of the first defendant was at all times well and truly aware of the extent of credit being sought and allowed to the first defendant.
Whether or not, strictly, there was any requirement to make a demand, I am satisfied on the evidence before me that an appropriate demand has been made with respect to the first defendant and indeed a demand was made on the second defendant as guarantor (as admitted in the Defence). Accordingly, I am satisfied that the second defendant owes the sum of $58,076.58 to the plaintiff pursuant to the terms of his guarantee and there should be judgment for the plaintiff in that amount.
As far as the questions to be answered by the trial Judge are concerned I answer each of those questions in the negative.
In addition, the plaintiff claims the amount of $2,100 on account of legal fees incurred in attempting to recover the amount owing. Clause 2(b) of the credit application provides:
The Customer agrees to pay all legal costs and expenses … incurred by the Supplier in connection with the recovery of overdue amounts.
I am satisfied, based on the documents in exhibit P1 and exhibit P2, that the plaintiff has made a claim under this head in the amount of $2,100 said to be due from the first defendant. Further, as a matter of contract, such a liability, if proved against the first defendant, would fall within the terms of the guarantee. However, whilst the evidence before the court demonstrates that a demand for this amount with respect to costs of recovery has been made, no particulars of why and when this sum was incurred have been given. I have been unable to locate anything in the documentary evidence which would serve to justify the amount of $2,100 as claimed. Accordingly, I am not in a position at this stage to enter judgment for this amount.
According to clause 2(a) of the credit application and under the heading ‘Overdue Accounts and Security’, the first defendant (customer) has agreed that:
Any amount not paid by the due date will, at the discretion of the Supplier, incur interest at the (sic) 1.5% above the rate charged by National Australia Bank for overdrafts in excess of $100,000. Such interest shall be calculated on monthly balances.
Accordingly, the plaintiff has a contractual right to interest on overdue balances at least until such time as judgment were to be entered. I am also satisfied, that this obligation to pay interest falls within the terms of the guarantee. Clause 1 of the guarantee provides that the second defendant guarantees payment to the plaintiff of the price charged for goods supplied but also “payment of any other monies now or in the future owing by the customer [the first defendant] to the supplier [the plaintiff].
In any event, the plaintiff would be entitled to pre-judgment interest on the amount of $58,076.58 in accordance with s 39 of the District Court Act 1991 and the Rules of Court. It may be that there would be no significant difference between the respective amounts of interest calculated in accordance with these two alternatives. The calculation of interest is a mechanical exercise and is a matter the parties should be able to agree.
In the first instance there will be judgment for the plaintiff against the second defendant in the amount of $58,076.58. However, I will hear the parties further on the question of the amount $2,100 claimed by the plaintiff for contractual entitlement to costs, on the question of interest and on the issue of the costs of these proceedings.