Canadian Solar (Australia) Pty Ltd v Young

[2014] NSWSC 987

Supreme Court

New South Wales

Medium Neutral Citation:

Canadian Solar (Australia) Pty Ltd v Young [2014] NSWSC 987

Hearing dates:

24 July 2014

Decision date:

28 July 2014

Jurisdiction:

Common Law

Before:

Davies J

Decision:

1. Dismiss the Defendant's Notice of Motion filed 4 June 2014.

2. Order that the Defendant pay the Plaintiff's costs of the Motion.

Catchwords:

GUARANTEE AND INDEMNITY - release of guarantor - by express terms of the guarantee - construction of the guarantee - whether ambiguity - contra proferentem rule - proceedings on guarantee by creditor -summary dismissal application by guarantor - no unarguable case by Plaintiff

Cases Cited:

Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424
Ankar Pty Ltd v National Westminster Finance Australia Ltd [1987] HCA 15; (1987) 162 CLR 549
Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99
Commercial Bank of Australia v Cavanaugh (1980) 7 NTR 12
Rava v Logan Wines [2007] NSWCA 62
TCN Channel 9 v Hayden Enterprises (1989) 16 NSWLR 130

Texts Cited:

O'Donovan & Phillips, The Modern Contract of Guarantee, (3rd ed 1996, LBC) at 487.

Category:

Interlocutory applications

Parties:

Canadian Solar (Australia) Pty Ltd (Plaintiff)
Ross Brendan Young (Defendant)

Representation:

Counsel:
T J Hancock (Plaintiff)
L Corbett (Defendant)
Solicitors:
DibbsBarker Lawyers (Plaintiff)
Makinson d'Apice as agents for
Aitken Partners (Defendant)

File Number(s):

2013/347656

Judgment

1. The Defendant applies by Motion filed 4 June 2014 to dismiss the Plaintiff's proceedings against him on the basis that they do not disclose a reasonable cause of action.

1. The Plaintiff sues on a Guarantee given by the Defendant for obligations under a contract to supply solar photovoltaic panels to a company called Redset Group Pty Ltd. That company is now subject to a Deed of Company Arrangement. The agreement between the Plaintiff and Redset was made on 23 July 2012. It was varied to increase the credit facility to US$1.5 million in about April 2013.

1. The Defendant was a director of Redset.

1. On 18 April 2013 he executed a Guarantee in these terms:

1. The supplier has provided or is to provide an increase in credit facilities from USD 0.5M to USD1.5 Million dollars to the Company at the request of the Director named above.

2. The Director jointly and severally guarantees to the supplier the due performance by the Company to the supplier of whatsoever nature and howsoever arising.

3. The guarantee should be a continuing guarantee for the purport of securing the performance of the whole obligations of the Company.

4. The Director may only be released from this guarantee in the following events:

a) By agreement of the supplier or,

b) By giving notice in writing to the supplier by certified mail of the renunciations of this guarantee which renunciation shall be effective of all facilities loan and accommodations provided to the company by the supplier on or after the date of the receipt by the supplier of such intimation, and not otherwise, or

c) The expiry of 6 months from the date of signing this agreement

d) The supplier increases the limit from USD0.5M to USD1.5M dollars

5. The Director covenant with the supplier to indemnify the supplier in respect of all and any loss caused by the failure of the company to adhere to the obligations of the company to the supplier.

6. In the event of default of the part of the company the supplier shall be entitled any time thereafter to take action against any of the Director to recover the whole or any part of monies outstanding to the supplier by the company irrespective of the taking or otherwise of any action against the company.

1. The Statement of Claim pleads that Redset ordered and the Plaintiff supplied stock in accordance with the consignment agreement. However, Redset failed to pay the invoices for the stock supplied.

1. On or about 6 August 2013 the Plaintiff made formal demand on Redset, and on 19 August it made demand on the Defendant under the terms of the Guarantee. The Defendant has not paid the monies demanded.

Submissions

1. The Defendant claims that under the terms of clauses 4(c) and (d) he is released from the Guarantee. Pursuant to clause 4(c) he asserts that six months expired from the date of signing the Guarantee before the proceedings were commenced on 18 November 2013 and he is, therefore, released. Under subclause (d) he asserts that because the supplier increased the limit from US$0.5 million to US$1.5 million he is released.

1. The Defendant says that the issue turns on the meaning of the word "may" in the introductory words to clause 4. The Defendant says on a proper construction of the clause "may" must mean "shall" or "will".

1. The Defendant submits that what is contained in each of the sub-clauses of clause 4 shows that the word "may" is, in effect, facultative and not discretionary. First, he submits that the whole of sub-clause (a) is otiose if the word "may" in the introductory section gives a discretion. That is because it is only the supplier who could be agreeing to release the guarantor.

1. Secondly, he submits in relation to sub-clause (b) that the guarantor is able to give notice of the renunciation of the Guarantee for all facilities provided to the company by the supplier on or after the date of receipt of the notice. That being so, it is inconsistent for the word "may" in the introductory words to be construed as discretionary.

1. The release referred to in clause 4(c) is said by the Defendant to be a retrospective release.

1. The Plaintiff submits that the date on which the proceedings are commenced is irrelevant. The Plaintiff says that by virtue of the demand on the Defendant on 19 August 2013 the Defendant was fixed with liability under the Guarantee. Further, the Plaintiff points to clauses 2 and 6 of the Guarantee as showing that any release cannot be a retrospective release.

Decision

1. The Guarantee is a most unsatisfactory document. It was only entered into at the time of an increase in the credit facilities from US$0.5 million to US$1.5 million. In those circumstances, what is contained in clause 4(d) makes no sense at all. If construed literally, the Guarantee would be worthless.

1. Nor is it clear how one person, the Defendant, can "jointly and severally" guaranteee the performance by the principal debtor. Presumably clause 2 is intended to mean that the company and the Defendant are jointly and severally liable.

1. I accept that where a guarantee is ambiguous there is a rule of construction that it should be construed contra proferentem the creditor. So, in Ankar Pty Ltd v National Westminster Finance Australia Ltd [1987] HCA 15; (1987) 162 CLR 549 the joint judgment of Mason ACJ, Wilson, Brennan and Dawson JJ said:

At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris and that ambiguous contractual provisions should be construed in favour of the surety.

This principle was affirmed in Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 at [17] and [23].

1. Nevertheless, it is important to recall what Campbell JA said in Rava v Logan Wines [2007] NSWCA 62:

[53] ...It needs to be recalled that the contra proferentem rule is just one rule of construction. It needs to be used bearing in mind the fundamental purpose of construction of a document, namely, to ascertain the intention of the parties arising from the document as a whole and reading the document with such background information as was known by all the parties to it.

[54] Further, it is to be used along with other aids that the law recognises for the construction of a document. Other such aids for construction of a document include the one that says that a contract that has been entered in a business context and is elliptical or ambiguous should be not read in a way that is commercially unlikely to be what the parties intended: Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109; Cohen & Co v Ockerby & Co Ltd (1917) 24 CLR 288 at 300; The Council of the Upper Hunter County District v Australian Chilling and Freezing Co Ltd (1968) 118 CLR 429 at 437. Closely allied principles are ones whereby a construction should be avoided if it leads to a capricious and unreasonable result (Australian Broadcasting Commission at 109) and whereby if a contract is open to two constructions it will receive that construction which will avoid consequences that are capricious, unreasonable, unjust or inconvenient (TCN Channel 9 v Hayden Enterprises Pty Ltd (1989) 16 NSWLR 130 at 146).

[55] Further, it is not a legitimate use of the contra proferentem rule to say that two meanings of a particular contractual provision are possible and hence the meaning unfavourable to the proferens should be chosen if one of those meanings is an unrealistic or unlikely construction of the contract - North v Marina at para [75] and cases there cited. Rather, the contra proferentem rule is to be used only where the document is otherwise ambiguous, and it is a principle of last resort: North v Marina at [76]-[78] and cases there cited.

1. In my opinion, the submission of the Defendant that he is not liable under the guarantee because the release referred to in clause 4(c) was retrospective should be rejected for the following reasons.

1. First, the Defendant is likely to be correct in its argument that the word "may", in the introductory part of clause 4, should be seen as facultative rather than discretionary. Certainly, there is force in the Defendant's submissions concerning clauses 4(a) and 4(b) that point strongly against "may" being discretionary. However, nothing in the Guarantee, when read as a whole, suggests that any release effected at the six month point by clause 4(c) would be a retrospective release.

1. Clauses 3 and 6 when read together seem to me to be inconsistent with a retrospective release. The Guarantee is said to be a continuing guarantee for securing the performance of the obligations of the company, and the supplier may at any time take action if there has been a default on the company's part. That alone is a sufficient reason for rejecting the relevance of the commencement of the proceedings in relation to the six month period.

1. Secondly, the release effected by clause 4(b) is a prospective release only. That might have the effect that "release" in the introductory words means different things depending on which subclause is relied upon. I accept, however, that there is an argument that because the release in (b) is expressly prospective, the release in (c) may be retrospective.

1. That would run counter to the general principle that a revocation or release is for future liabilities only: O'Donovan & Phillips, The Modern Contract of Guarantee, (3rd Ed 1996, LBC) at 435 and 449. In Commercial Bank of Australia v Cavanaugh (1980) 7 NTR 12 Gallop J said (at pp 14-15):

A guarantee may expressly provide that it is revocable or determinable either by the surety or the creditor by notice. The effect of such a notice is merely to prevent future liability accruing under the guarantee but it in no way relieves from liability already accrued (Halsbury 4th Ed , Vol 20, para 298). Hence, if the express provision in the subject guarantee merely provided that it was revocable or determinable by the surety, its effect would have been to crystalise any liability already accrued and prevent any future liability accruing under the guarantee.

1. Hence, the Plaintiff's argument, that the release referred to in (c) is not retrospective, cannot be said to be hopeless to justify a summary dismissal.

1. Thirdly, the evidence discloses that invoices were required to be paid within 30 days of their date. If the Defendant's argument was correct, it would require the Plaintiff to commence proceedings against the Defendant within six months of the date of the guarantee regardless of whether the 30 day period had expired.

1. The matter may be tested in this way. If goods had been supplied and invoiced to the company at any time in October 2013 there would be no default on the company's part until 31 October at the earliest. Demands could not be made and proceedings could not be commenced. Nevertheless, the Defendant would have to say that because six months from the date of the guarantee expired on 18 October 2013 he could never be liable under the guarantee for those goods. That would be a commercially unlikely intention of the parties and would lead to a capricious and unreasonable result: Rava at [54]; Australian Broadcasting Commission v Australasian Performing Right Association Limited (1973) 129 CLR 99 at 109 per Gibbs J; TCN Channel 9 v HaydenEnterprises (1989) 16 NSWLR 130 at 146 per Hope JA. Even if it is assumed there is an ambiguity in subclause (c), it is not appropriate to apply the contra proferentem principle in the circumstances.

1. Fourthly, even if there was an available argument that the release in clause 4(c) was retrospective, once the guarantor was fixed with liability under the Guarantee the date of commencement of proceedings must be irrelevant. That arises not only from the terms of clause 6 but because the guarantor's liability is not under this Guarantee, or more generally, determined by the date proceedings are commenced (limitation periods excepted).

1. Under this Guarantee it was not necessary to serve a demand for the guarantor to be liable. There is no general principle that a demand is necessary when the terms of the guarantee do not require it: O'Donovan & Phillips at p. 487. However, a demand was served identifying what was required to be paid by the guarantor. To construe the Guarantee in a way that enabled the guarantor to be released from that liability with which he was already fixed simply by the expiry of the six month period from the date of the Guarantee, would be capricious and an unreasonable result. It is one thing to be released from a contingent liability (future failures by the company to pay), but it would take clear words for the release to extend to liability that had become actual.

1. Although there are some difficulties with the Guarantee, those difficulties do not involve the matters the subject of the present claim. The Defendant gave a continuing guarantee for the performance by the company of its obligations to the Plaintiff. Clause 4(c) may have entitled the guarantor to be released from liabilities incurred after 18 October 2014. They do not exempt the Defendant from liability incurred prior to the six month period particularly in circumstances where demand was made within that period and proceedings were thereafter commenced in accordance with clause 6.

1. The Defendant has not shown that the Plaintiff does not have a reasonable cause of action against the Defendant.

1. Accordingly, I make the following orders:

1. Dismiss the Defendant's Notice of Motion filed 4 June 2014.

2. Order that the Defendant pay the Plaintiff's costs of the Motion.

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Decision last updated: 28 July 2014