Bowen Buchbinder Vilensky (A Firm) [No 2]

Case •

[2011] WADC 67

•

4 MAY 2011

JURISDICTION     :   DISTRICT COURT OF WESTERN AUSTRALIA

IN CIVIL

LOCATION:   PERTH

CITATION:   BOWEN BUCHBINDER VILENSKY (A FIRM) [No 2] [2011] WADC 67

CORAM:   SCOTT DCJ

HEARD:   4 APRIL 2011

DELIVERED          :   4 MAY 2011

FILE NO/S:   CIV 2603 of 2010

BETWEEN:   BOWEN BUCHBINDER VILENSKY (A FIRM)

First Plaintiff

BBV LEGAL PTY LTD
Second Plaintiff

ANGELA CECILIA THERESA FRIGGER
Defendant

Catchwords:

Appeal and cross appeal on O 14 determination - Whether guarantee by defendant - Effect on any guarantee of reconstitution of partnership - Section 25 of Partnership Act - Whether on incorporation of second plaintiff there was an assignment or novation of retainer agreement

Legislation:

Partnership Act 1895, s 25

Result:

Plaintiffs' appeal dismissed
Defendant's appeal allowed
Unconditional leave to defend

Representation:

Counsel:

First Plaintiff                :     Mr J C Yeldon

Second Plaintiff            :     Mr J C Yeldon

Defendant:     Mr D W Thompson

Solicitors:

First Plaintiff                :     Bowen Buchbinder Vilensky

Second Plaintiff            :     Bowen Buchbinder Vilensky

Defendant:     David Thompson

Case(s) referred to in judgment(s):

Bradford Old Bank v Sutcliffe [1918] 2 KB 833

Fancourt v Mercantile Credits Ltd (1983) 154 CLR

International Leasing Corporation (Vic) Ltd v Aiken [1967] 2 NSWR 427

Tolhurst v Associated Portland Cement Ltd [1902] 2 KB 660

Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

  1. SCOTT DCJ: This is an appeal by the plaintiffs against orders made by Registrar Kingsley on the plaintiffs' application for summary judgment by which the learned registrar dismissed the application and gave leave to the defendant to defend the action but restricted to the issue as to whether the alleged guarantee by the defendant was revoked pursuant to s 25 of the Partnership Act 1895.

  2. The plaintiffs seek an order on this appeal that there be judgment against the defendant.

  3. The defendant has also appealed the decision by the learned registrar and seeks an order that she be given unconditional leave to defend the action.

  4. These appeals are by way of a hearing de novo.  My decision on this appeal is to be given on the evidence relied on by the parties at the hearing before me.  The evidence adduced by each party is contained in the following affidavits.

Plaintiffs

David Vilensky sworn 28 September 2010

David Vilensky sworn 11 January 2011

David Vilensky sworn 25 February 2011

Defendant

Angela Frigger sworn 25 October 2010

Angela Frigger sworn 13 January 2011

Angela Frigger sworn 11 March 2011

Relevant chronology

•The first plaintiff was a legal firm of which there were a number of partners.

•The defendant was at all material times a director of Computer Accounting and Tax Pty Ltd (in liq) (CAT).

•A provisional liquidator was appointed to CAT on 21 January 2010.

•By a retainer agreement dated 6 March 2007 CAT retained the first plaintiff to act for it in a Supreme Court action in which CAT, Professional Services of Australia Pty Ltd and Martin Banning were parties (retainer agreement).

•By no later than 1 May 2007 the first plaintiff admitted Morgan Solomon to the firm as a new partner.

•As and from 31 December 2007, the first plaintiff transferred and assigned to the second plaintiff all of its assets including its goodwill, business name and its right title and interest in and to all retainer agreements entered into by it and its clients prior to that date (Vilensky affidavit 25 February 2011) and thereupon ceased trading (Vilensky affidavit 11.01.11).

•As and from 1 January 2008 the second plaintiff as trustee for the BBV Legal Trust commenced trading in the name of the first plaintiff.

•The following accounts were rendered to CAT:

31.10.2007:  $56,717.58.  After taking into account funds held in trust and a balance outstanding from previous accounts the sum then stated in this account to be owing by CAT was $56,699.38 (Vilenski affidavit 28 September 2010 attachment 'DV3').  In par 9(a) of the amended statement of claim the sum is referred to as $6,699.88.  That figure appears to be incorrect.

30.11.2007$69,630.44

31.01.2008$48,187.21

29.02.2008$34,940.03

•On 3 August 2010 a bill of costs was taxed in the Supreme Court and allowed in the sum of $252,489.47.

  1. The bill was allowed in favour of both plaintiffs for this sum which is the amount to which both plaintiffs claim entitlement in this action.

  2. That is so notwithstanding it being the position of both plaintiffs that as and from 31 December 2007 the first plaintiff ceased practising and transferred all its partnership assets to the second plaintiff which thereafter provided the legal services.  As a consequence it is difficult to see how both plaintiffs can lay claim to this amount.  If there has been an effective assignment by the first plaintiff of any sum due to it then the sole claimant should be the second plaintiff.

  3. Otherwise there should, I would have thought, be an apportionment between the plaintiffs as to the sum claimed.

  4. The triable issues identified by the defendant in her outline of submissions dated 15 January 2011 are as follows:

    (1)The terms of the retainer agreement constituting the alleged guarantee.

    (2)The effect of the defendant's signature on the retainer agreement ie, whether she signed as guarantor.

    (3)Who the parties to the retainer agreement and any guarantee are.  This issue is really bound up with the second issue.

    (4)Whether there can be an enforceable contract of guarantee given that the defendant's husband, as a director and shareholder of CAT, did not execute the retainer agreement as guarantor.

    (5)Whether any guarantee was revoked by the provisions of s 25 of the Partnership Act consequent upon the appointment of Mr Solomon as a partner as and from at least 1 May 2007.

    (6)Whether any guarantee enured to the second plaintiff without the express consent of the defendant.

    (7)Whether the judgment constituted by the taxation of costs was enforceable against the defendant (if there was a guarantee).

    (8)If the defendant is bound as guarantor whether there is a right of set­off in the event that she has the plaintiffs' bill of costs taxed as a person charged.

  5. It is settled law that the power to order summary judgment is to be exercised with great care and will not be exercised unless it is clear that there is no real question to be tried (Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87, 99).

  6. The issue then is whether the plaintiffs have discharged the burden of persuading the court that there is no real question to be tried.

Terms of retainer agreement – whether there was a guarantee

  1. In order to determine whether a contract is one of guarantee the court looks at the natural meaning and the substantial character of the document itself and the nature of the transaction between the parties.

  2. The words used by the parties are not considered in isolation.  They must be construed in the light of the surrounding circumstances present at the time that the instrument was executed.  To that end the court attempts to ascertain the true intention of the parties at the time when the arrangement was made (O'Donovan and Phillips, Modern Contract of Guarantee, 3rd ed, 18 – 19).

  3. In her affidavit sworn 25 October 2010, the defendant denies that she signed the retainer agreement as guarantor in response to which the plaintiffs assert that she is bound by the terms of the document whether or not she read same and cites Toll (FCGT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165.

  4. Whilst it may be the case that persons who sign documents are bound by their contents the core issues here involve a consideration of what the retainer agreement provides and the capacity in which the defendant entered into and signed the document.

  5. The parties to the retainer agreement appear, on the face of the document, to be CAT and the first plaintiff.  That appears clear from page 1 and also page 8 upon which the signing clauses appear.

  6. Throughout the retainer agreement the words 'I', 'we', 'me' and 'my' appear to refer to the named client, in this case CAT.  That is in my view apparent from the plain reading of the document by which the client acknowledges and agrees various obligations for which it is responsible.

  7. On page 8 there is provision for execution by CAT, under which the defendant signed.

  8. The plaintiffs assert that by signing the document on page 8, the defendant, on a proper construction of cl 19, guaranteed the obligations of CAT to the first plaintiff for fees and disbursements because she was a director of that company.

  9. Relevantly, cl 19 provides as follows:

    I understand that if you are instructed by me to act on behalf of a company of which I am a director or shareholder, in consideration of agreeing of [sic] act I guarantee the payment of all money payable by the company to you on any account, as and when it becomes due and I further agree that:

    (b)your rights against me as Guarantor shall not be affected by:

    (ii)this retainer or the liability of the company being or becoming invalid, illegal or unenforceable for any reason …

  10. There is in my view at the very least an issue as to whether, on a proper construction of cl 19, the word 'I' does refer to a party other than the named client.

  11. To that end, cl 19 would appear to be suited to the named client being a natural person rather than a company.  In that event a reasonable construction of that provision would be that should that person give instructions to the first plaintiff to act in another matter for a company of which the person was a director or shareholder then, by this clause, that person undertakes to guarantee the liability of that company on any account.

  12. In addition there is, on the face of the document, an issue which arises as to the capacity in which the defendant's signature was affixed.  The signing clause provides:

    Signed by:  Computer Accounting and Tax Pty Ltd

    underneath which is provision for a signature.  It is plain that the defendant signed on behalf of CAT and it is arguable that that was the only capacity in which she signed the document.

  13. In these circumstances the proper approach is to ascertain her intention from a construction of the document as a whole, including (but not limited to) any qualification attached to the signature and in light of the surrounding circumstances (O'Donovan and Phillips, The Modern Contract of Guarantee 3rd ed, 246 and the cases therein referred to).

  14. There is in my view a triable issue as to whether cl 19 refers to the defendant and whether the defendant executed the document in (inter alia) the capacity as guarantor and is liable in that capacity.

Reconstitution of partnership

  1. In par 3 – 48 in Lindley and Banks on Partnership 19th ed, the authors observe that whatever may be the cause of the change in the firm including the introduction of a new partner that change immediately put an end to the surety's future liability even though he may not suffer as a result.

  2. The surety would however remain liable for any debts already accrued and ascertained even if that debt was the subject of assignment or novation (Bradford Old Bank v Sutcliffe [1918] 2 KB 833).

  3. The defendant relies upon the provisions of s 25 of the Partnership Act which provides:

    A continuing guaranty given either to a firm or to a third person, in respect of the transactions of a firm is, in the absence of an agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which or of the firm in respect of the transactions of which the guaranty was given.

  4. If cl 19 of the retainer agreement does result in there being an enforceable guarantee on the part of the defendant for debts due by CAT to the first plaintiff the question arises as to whether the provisions of cl 19(b)(ii) can be relied upon, as the plaintiffs maintain, to constitute an 'agreement to the contrary' to which s 25 of the Partnership Act refers.

  5. Section 25 refers to the effect on the liability of a guarantor if there is a change in the constitution of the firm to which the guarantee is given.

  6. For the purposes of s 25 the 'agreement to the contrary' would need to provide that the guarantee would not be revoked as to future transactions notwithstanding the reconstitution of the first plaintiff or be in terms sufficiently wide to cover that eventuality.

  7. Clause 19(b)(ii) refers to the effect on the liability of the guarantor in circumstances where the retainer (of the first plaintiff by CAT) or the liability of CAT became invalid, illegal or unenforceable.

  8. The reconstitution of the first plaintiff by the admission of a new partner would not be such a circumstance.  It would not affect the validity, legality or enforceability of the retainer (of the first plaintiff by CAT) or the liability of CAT to the first plaintiff.

  9. The result in my view is that there is at least a triable issue as to whether any guarantee was revoked as to transactions after the admission of Mr Solomon to the partnership.

Assignment or novation

  1. The retainer agreement is a contract for personal services.  That is, a contract by which the first plaintiff was engaged to provide legal services with respect to the Supreme Court action specified in that agreement in return for which CAT was obliged to comply with the provisions of the agreement including the liability to pay legal fees and disbursements as and when they were properly incurred.

  2. A contract such as this is in stark contrast to a situation where there is a debt or other contractual right which may be assigned without the consent of the debtor.

  3. There is a relevant discussion about the topic in Cheshire and Fifoot's Law of Contract, 9th Australian ed, par 8.45 et seq.  At par 8.45 the authors say:

    Novation applies both to the transfer of contractual rights and to the transfer of contractual obligations whereas assignment applies only to contractual rights.

    Tolhurst v Associated Portland Cement Ltd [1902] 2 KB 660, 668 refers.

  4. In this case the first plaintiff has, on the plaintiffs' case, transferred and assigned to the second plaintiff all of the partnership assets including the retainer agreements with clients of the first plaintiff which include the retainer agreement.

  5. This means that after 31 December 2007 the entity which was to provide legal services to CAT would be the second plaintiff and not the first plaintiff.  The evidence is that after 31 December 2007 the first plaintiff ceased trading (Vilensky affidavit 11.01.11) so it appears that there was not merely an assignment of contractual rights, but also contractual obligations.  Hence a novation.

  6. In order to bind CAT and any guarantor to the terms and conditions of the retainer agreement in favour of the second plaintiff there would need to be a novation with the consent of all of the parties concerned including, in my view, any guarantor.  That is because the effect of a novation is that a new contract is substituted for the one that had previously been made.

  7. That is not to say that CAT would not be liable for costs and disbursements properly claimed by the second plaintiff upon providing legal services to CAT.  The amount of those costs and disbursements would however, unless there was agreement to the contrary, be determined in accordance with the appropriate scale of fees to which the second plaintiff would be entitled.

  8. In International Leasing Corporation (Vic) Ltd v Aiken [1967] 2 NSWR 427, Asprey JA said [10]:

    I can find no case in which it has been held that, where a creditor who holds a guarantee for the repayment of a debt and who assigns that debt but does not assign the guarantee, the benefit of guarantee follows the assignment of the debt for the advantage of the assignee unless the terms of the guarantee itself are such that it operates in favour not only of the original creditor to whom it was addressed but also of any person to whom the debt may for the time being be owing.

  9. Absent consent by or agreement from the defendant any liability of CAT to the second plaintiff would not be guaranteed by her.

  10. There is in my view a triable issue as to whether the purported assignment was in reality a novation which would require agreement from all parties before the second plaintiff could enforce any guarantee by the defendant.

  11. Having made findings that there are a number of matters which give rise to triable issues in this case I do not consider it necessary to deal with the balance of the defendant's submissions.

  12. The defendant ought to be given unconditional leave to defend this action.

  13. As a consequence:

    (1)The plaintiffs' appeal will be dismissed.

    (2)The defendant's cross appeal will be allowed.

    (3)The defendant will have unconditional leave to defend the action.

    I will hear the parties on the question of costs.

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